Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (1 of 129)
No. 13-2818
UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
Dr. Fortunee Massuda, Plaintiff-Appellant v.
Panda Express, Inc., Panda Restaurant Group, Inc., Citadel-Panda Express, Inc., Andrew Cherng and Peggy Cherng, Defendants-Appellees
Appeal From The United States District Court For the Northern District of Illinois, Eastern Division Case No. 12 CV 9683 The Honorable Ronald A. Guzman
BRIEF OF THE DEFENDANTS-APPELLEES PANDA EXPRESS, INC., PANDA RESTAURANT GROUP, INC., CITADEL-PANDA EXPRESS, INC., ANDREW CHERNG, AND PEGGY CHERNG
GIBSON, DUNN & CRUTCHER LLP Theodore J. Boutrous Jr. Christopher D. Dusseault Alexander K. Mircheff 333 South Grand Avenue Los Angeles, California 90071 (213) 229-7000
EDWARDS WILDMAN PALMER LLP Michael Docketerman William R. Lee Tanya H. Miari 225 West Wacker Drive, Suite 3000 Chicago, Illinois 60606 (312) 201-2000 Attorneys for Defendants-Appellees
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CIRCUIT RULE 26.1 DISCLOSURE STATEMENT
The undersigned, counsel of record for Defendants-Appellees Panda Express, Inc., Panda
Restaurant Group, Inc., Citadel-Panda Express, Inc., Andrew Cherng, and Peggy Cherng, furnishes the following list in compliance with Circuit Rule 26.1:
(1) The full name of every party that the attorney represents in the case:
Panda Express, Inc., Panda Restaurant Group, Inc., Citadel-Panda Express, Inc., Andrew
Cherng, and Peggy Cherng
(2) The names of all law firms whose partners or associates have appeared for the
party in the case (including the proceedings in the district court or before an
administrative agency) or are expected to appear for the party in this court:
GIBSON, DUNN & CRUTCHER LLP; EDWARDS WILDMAN PALMER LLP
(3) If the party or amicus is a corporation, i) Identify its parent corporations, if any:
Panda Express, Inc. and Citadel Panda Express, Inc. are wholly owned subsidiaries of
Panda Restaurant Group, Inc. (“PRG”). PRG is a subsidiary of Andrew and Peggy Cherng
Family Company.
ii) Any publicly held company that owns 10% or more of the party’s or amicus’ stock:
None.
/s/ Christopher D. Dusseault Christopher D. Dusseault GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue Los Angeles, California 90071 (213) 229-7000
/s/ Michael Docketerman Michael Docketerman EDWARDS WILDMAN PALMER LLP 225 West Wacker Drive, Suite 3000 Chicago, Illinois 60606 (312) 201-2000
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TABLE OF CONTENTS
I. JURISDICTIONAL STATEMENT ...... 1
II. STATEMENT OF ISSUES ...... 1
III. STATEMENT OF THE CASE ...... 2
IV. STATEMENT OF FACTS ...... 4
A. Background ...... 4
B. The Instant Allegations ...... 6
C. The District Court’s Order ...... 8
V. SUMMARY OF ARGUMENT ...... 10
VI. ARGUMENT ...... 11
A. The District Court Correctly Dismissed the Claims Plaintiff Asserts Because They Are Derivative And Were Released By PE Chicago...... 11
1. The Claims Are Derivative Under Tooley...... 11
2. Gentile Does Not Change the Claims’ Derivative Characterization...... 14
3. PE Chicago Settled and Released the Claims...... 18
B. The District Court Was Well Within Its Discretion to Reject Judicial Estoppel...... 20
1. PE Chicago’s Claims Were Addressed on the Merits...... 21
2. Defendants’ Arguments Have Been Entirely Consistent...... 23
C. The District Court Properly Dismissed Plaintiff’s Fraud Claim For Failure To Adequately Plead Intent, Reliance, and Damages...... 25
D. Leave to Amend Should be Denied...... 29
VII. CONCLUSION ...... 31
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TABLE OF AUTHORITIES
Cases
Agostino v. Hicks, 845 A.2d 1110 (Del. Ch. 2004) ...... 24
Allied Artists Pictures Corp. v. Baron, 413 A.2d 876 (Del. 1980) ...... 18
Ashcroft v. Iqbal, 556 U.S. 662 (2009) ...... 29
Avacus Partners, L.P. v. Brian, 1990 WL 161909 (Del. Ch. Oct. 24, 1990) ...... 14
B A Mortg. & Int’l Realty Corp. v. Taylor, No. 84 C 7739, 1985 WL 1703 (N.D. Ill. June 7, 1985) ...... 27
Beckham v. Keith, 2011 WL 9557991 (Mass. Super. Ct. June 15, 2011) ...... 17
Boland v. Engle, 113 F.3d 706 (7th Cir. 1997) ...... 30
Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502 (7th Cir. 2007) ...... 26
Braddock v. Zimmerman, 906 A.2d 776 (Del. 2006) ...... 19
Connick v. Suzuki Motor Co., 675 N.E.2d 584 (Ill. 1996) ...... 27
Cyrus v. Town of Mukwonago, 624 F.3d 856 (7th Cir. 2010) ...... 27
Economy Folding Box Corp. v. Anchor Frozen Foods Corp., 515 F.3d 718 (7th Cir 2008) ...... 14
Elf Atochem N. Am. v. Jaffari, 727 A.2d 286 (Del. 1999) ...... 12
Farnham v. Windle, 918 F.2d 47 (7th Cir. 1990) ...... 30
Feldman v. Cutaia, 951 A.2d 727 (Del. 2008) ...... 12, 13, 16, 17
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Feldman v. Cutaia, 956 A.2d 644 (Del. Ch. 2007) ...... 17
For Your Ease Only, Inc. v. Calgon Carbon Corp., 560 F.3d 717 (7th Cir. 2009) ...... 28
G & S Holdings LLC v. Cont’l Cas. Co., 697 F.3d 534 (7th Cir. 2012) ...... 12
Gatz v. Ponsoldt, 925 A.2d 1265 (Del. 2007) ...... 16
Gentile v. Rossette, 906 A.2d 91 (Del. 2006) ...... 10, 14, 15, 16, 17
In re CD Liquidation Co., 462 B.R. 124 (D. Del. Bnkpcy. 2011) ...... 17
In re First Interstate Bancorp Consol. S’holder Litig., 729 A.2d 851 (Del. Ch. 1998) ...... 13, 18
In re Knight-Celotex, LLC, 695 F.3d 714 (7th Cir. 2012) ...... 20
In re NYMEX S’holder Litig., 2009 WL 3206051 (Del. Ch. Sept. 30, 2009) ...... 13
Innovative Therapies, Inc. v. Meents, No. DKC 12-3309, 2013 WL 2919983 (D. Md. June 12, 2013) ...... 17
Int’l Mktg., Ltd. v. Archer-Daniels-Midland Co., 192 F.3d 724 (7th Cir. 1999) ...... 30
Joe W. & Dorothy Dorsett Brown Foundation v. Frazier Healthcare V, L.P., 889 F. Supp. 2d 893 (W.D. Tex. 2012) ...... 17
Kennedy v. Four Boys Labor Servs. Inc., 664 N.E.2d 1088 (Ill. App. Ct. 1996) ...... 29
Kramer v. W. Pac. Indus., Inc., 546 A.2d 348 (Del. 1988) ...... 12, 13, 14
Loral Space & Communications, Inc. v. Highland Crusader Offshore Partners, L.P., 977 A.2d 867 (Del. 2009) ...... 16
Metro. Life Ins. Co. v. Tremont Grp. Holdings, Inc., No. Civ. A. 7092–VCP, 2012 WL 6632681 (Del. Ch. Dec. 20, 2012) ...... 13, 18, 24
iii Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (6 of 129)
Nikoonahad v. Greenspun Corp., No. C09-02242, 2010 WL 1268124 (N.D. Cal. Mar. 31, 2010) ...... 17
Nunez-Moron v. Holder, 702 F.3d 353 (7th Cir. 2012) ...... 19
Ogden Martin Sys. of Indianapolis, Inc. v. Whiting Corp., 179 F.3d 523 (7th Cir. 1999) ...... 21
Pontarelli Limousine, Inc. v. City of Chicago, 929 F.2d 339 (7th Cir. 1991) ...... 23, 25
Prime Leasing Inc. v. Kendig, 773 N.E.2d 84 (Ill. 2002) ...... 27, 28
Ravenswood Inv. Co., L.P. v. Winmill, No. Civ. A. No. 3730–VCN, 2011 WL 2176478 (Del. Ch. May 31, 2011) ...... 13
Rhodes v. Silkroad Equity, LLC, No. Civ. A. 2133-VCN, 2007 WL 2058736 (Del. Ch. July 11, 2007) ...... 16
Swanson v. Citibank, N.A., 614 F.3d 400 (7th Cir. 2010) ...... 26
Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) ...... 1, 12, 13, 14, 23, 24
Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824 (7th Cir. 2007) ...... 26, 27
United States v. Christian, 342 F.3d 744 (7th Cir. 2003) ...... 23
VGS, Inc. v. Castiel, 2003 WL 723285 (Del. Ch. Feb. 23, 2003) ...... 12
Wells v. Coker, 707 F.3d 756 (7th Cir. 2013) ...... 21
Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012) ...... 27
Wilkinson v. Appleton, 190 N.E.2d 727 (Ill. 1963) ...... 28
Young v. Verizon’s Bell Atl. Cash Balance Plan, 667 F. Supp. 2d 850 (N.D. Ill. 2009) ...... 21
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Statutes
28 U.S.C. § 1291 ...... 30
28 U.S.C. § 1292 ...... 30
740 Ill. Comp. Stat. 160/2(c) ...... 29
740 Ill. Comp. Stat. 160/2(d) ...... 29
740 Ill. Comp. Stat. 160/2(i) ...... 29
Rules
Fed. R. Civ. P. 9(b) ...... 25, 26, 28, 29
Fed. R. Civ. P. 12(b)(1)...... 12
Fed. R. Civ. P. 23.1 ...... 19
Other Authorities
19 Am. Jur. 2d Corporations § 1949 ...... 24
Balotti & Finkelstein, The Delaware Law of Corporations and Business Organizations § 13.10 (2011) ...... 15
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I. JURISDICTIONAL STATEMENT
Defendants and Appellees Panda Express, Inc. (“Panda”), Panda Restaurant Group, Inc.
(“PRG”), Citadel-Panda Express, Inc., Andrew Cherng, and Peggy Cherng agree that Plaintiff
and Appellant Fortunee Massuda’s jurisdictional statement is complete and correct.
II. STATEMENT OF ISSUES
This is a case in which an indirect shareholder in a Delaware company seeks to re-litigate claims previously brought, settled, and released by the company itself. Plaintiff contends that she has been harmed because the company did not receive fair value when it sold Defendants its
“only real asset”—a 50% interest in a partnership that operated Chicago-area restaurants— causing lost profits and proceeds to the company, and thus to its parent, and thus to investors in the parent like Plaintiff. The District Court correctly held that the claims Plaintiff asserts, with one exception, were derivative rather than direct. The District Court held that Plaintiff cannot bring these claims on her own behalf because, under governing Delaware law, a shareholder’s direct claim requires some harm that is “independent of any injury to the corporation.” Tooley v.
Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1038 (Del. 2004) (emphasis added). And because the company settled these claims in a prior suit, Plaintiff cannot proceed derivatively on the company’s behalf. The District Court also dismissed the sole claim that it deemed to be individual—a fraud claim based on Panda’s alleged characterization of Massuda’s interest in the parent company as “worthless”—because Plaintiff failed to adequately allege the essential elements of intent, reliance, and damages.
The questions presented are as follows:
1. Did the District Court correctly apply Tooley to hold that the claims Plaintiff asserted were derivative where she failed to allege any harm independent of the injury allegedly
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suffered by the company in which she was an indirect investor, and did it properly dismiss those derivative claims where the company previously released them as part of a settlement?
2. Was the District Court within its discretion in concluding that Defendants were not judicially estopped from arguing that the claims Plaintiff asserted were derivative simply because Defendants had argued, the first time they had to defend them, that the claims lacked merit?
3. Did the District Court properly dismiss Plaintiff’s supposedly individual fraud claim, where she failed to sufficiently plead the essential elements of intent, reliance, and damages?
III. STATEMENT OF THE CASE
This case arises from a June 2006 transaction in which Panda purchased PE Chicago,
LLC’s (“PE Chicago’s”) one-half interest in the Rezko-Citadel Partnership, a partnership formed to open and operate Chicagoland restaurants. Panda was the general partner in Rezko-Citadel, while PE Chicago—a Delaware limited liability company controlled by Tony Rezko—was its limited partner. Panda sought to end that relationship amicably, paid PE Chicago a negotiated price for its partnership interest, and, consistent with Panda’s long practice of minimizing publicity regarding its business decisions, agreed to Rezko’s request that the sale be kept confidential (a standard arrangement in partnership dissolutions). In 2008, Semir Sirazi, one of
Rezko’s longtime investors, sued Panda in connection with that transaction, alleging, among other things, that Panda paid too little for PE Chicago’s interest in the partnership. Two years later, PE Chicago itself, by then controlled by Sirazi, joined that lawsuit and asserted the same claims (and others).
On Defendants’ motions, the court adjudicated most of Sirazi’s and PE Chicago’s claims
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(as well as Panda’s counterclaim against PE Chicago) in Defendants’ favor. Three claims were tried to a jury, which rendered a verdict against Defendants. While the parties’ post-trial motions were pending—and notwithstanding Defendants’ belief that the verdict was legally flawed and factually baseless—Defendants agreed to settle with Sirazi and PE Chicago in order to buy peace. In exchange for substantial consideration, PE Chicago agreed to a broad release of all claims related to the Rezko-Citadel Partnership (a fact Plaintiff does not mention in her Opening
Brief). Thereafter, the Sirazi/PE Chicago court vacated the jury’s verdict and resulting judgment.
Plaintiff—another longtime investor in Rezko’s businesses and an investor in PE
Chicago’s parent company—sat on the sidelines for more than four years while Sirazi and PE
Chicago litigated and then settled the prior case. Just a month after the settlement agreement was signed, however, Plaintiff—represented by the same attorneys who had represented Sirazi and
PE Chicago—filed a copycat lawsuit, asserting claims identical to the ones PE Chicago had just settled. Like the prior complaint, the claims here were premised on the allegation that PE
Chicago had unfairly lost the fair market value of its partnership interest, which harmed PE
Chicago, and thus its parent company because of lost proceeds and distributions, and thus investors in the parent like Plaintiff.
Defendants moved to dismiss Plaintiff’s claims, arguing among other things that the claims Plaintiff asserted were based on purported injuries to PE Chicago, and that, under governing Delaware law, those claims were therefore derivative claims that PE Chicago had already settled and released. The District Court agreed and dismissed the case, including a supposedly individual fraud claim because Plaintiff failed to plead intent, reliance, or damages, and declined to amend her complaint to attempt to do so.
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IV. STATEMENT OF FACTS
A. Background
On June 1, 2006, PE Chicago and Panda entered into a Purchase and Sale Agreement, in
which PE Chicago sold Panda its “only real asset”—a 50% interest in a partnership with Panda
known as “Rezko Citadel.” A1–2, 22.1 Plaintiff does not claim a direct interest in the partnership, or even in PE Chicago. Rather, PE Chicago was wholly owned and controlled by
Rezko Enterprises (“Enterprises”), a Delaware limited liability company that in turn was
controlled by its managing member, Tony Rezko. A1–2, 4. Plaintiff at one point had an 11%
interest in Enterprises by virtue of a subscription agreement she entered in the late 1990s. A4.
In 2008, another investor in Enterprises, Semir Sirazi, sued Panda and two affiliated
entities, Panda Restaurant Group, Inc. and Citadel Panda Express, Inc., asserting various tort
claims in connection with the 2006 transaction and claiming PE Chicago did not receive fair
value. Sirazi v. Panda Exp., Inc., Case No. 08-cv-02345 (N.D. Ill.) (Sirazi/PE Chicago). PE
Chicago later joined that action as a plaintiff in an amended complaint that added Panda’s former
general counsel and its co-owners, Andrew and Peggy Cherng, as defendants. Sirazi and PE
Chicago were represented in the prior lawsuit by the same lawyers who represent Plaintiff here.
Like Plaintiff here, PE Chicago asserted claims for, among other things, unjust
enrichment, fraud, conspiracy to defraud, aiding and abetting a breach of fiduciary duty, and
actual and constructive fraud in violation of Illinois’s Uniform Fraudulent Transfer Act. The
District Court adjudicated each of those claims on the merits in Defendants’ favor.2 After the
1 Adopting the abbreviations used in the Appellant’s Opening Brief (“AOB”), “SA” refers to Plaintiff’s Required Short Appendix (which contains the District Court’s Order), and “A” refers to Plaintiff’s Separate Appendix. “SuppA” refers to Defendants’ Supplemental Appendix. 2 The court granted summary judgment for Defendants on PE Chicago’s fraud, conspiracy to defraud, and fraudulent transfer claims, SuppA 76–77 (citing Sirazi, ECF No. 228); granted judgment as a (Cont'd on next page)
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jury decided certain other claims, the parties filed post-trial motions in May 2012, and PE
Chicago sought reinstatement of all of its claims. SuppA 78 (citing Sirazi/PE Chicago, ECF
No. 344 at 10 (“Plaintiffs’ Unjust Enrichment Claims Should Be Reinstated.”)); id. (citing
Sirazi/PE Chicago, ECF No. 344 at 13 (“All of PE Chicago’s Claims That Were Dismissed At
Summary Judgment Should be Reinstated”)); id. (citing Sirazi/PE Chicago, ECF No. 369 at 12
(“All of PE Chicago’s Claims Should Be Reinstated”)).
While the parties’ post-trial motions were pending, Defendants—despite believing that
the jury verdict was wrong as a matter of law and would likely be vacated on appeal—decided to
settle the claims. In October 2012, Sirazi, PE Chicago, and Defendants entered into a General
Release and Settlement Agreement. In exchange for substantial consideration from Defendants,
PE Chicago “compromise[d] and settle[d]” all its claims, and “agree[d] that this Settlement
Agreement shall constitute a bar to [its] making any Claims, including filing of any other action related to or arising under the Rezko-Citadel Partnership at any time or for any reason.” SA5
(quoting General Release & Settlement Agreement § 2.1) (emphasis added).
Following the settlement, on October 31, 2012, the District Court entered an order vacating the Sirazi/PE Chicago verdict and judgment pursuant to Federal Rule of Civil
Procedure 60(b).
(Cont'd from previous page) matter of law for Defendants on PE Chicago’s unjust enrichment claim, SuppA 82–83 (citing Sirazi/PE Chicago, Trans. at 1390:2–1391:6); and entered judgment for Defendants on PE Chicago’s claim for aiding and abetting a breach of fiduciary duty, SuppA 77 (citing Sirazi/PE Chicago, ECF No. 318). In April 2012, the court entered judgment against PE Chicago on Panda’s counterclaim, and against Defendants on Sirazi’s claims for conspiracy to defraud and aiding and abetting a breach of fiduciary duty and PE Chicago’s claim for breach of contract. SuppA 70 (citing Sirazi/PE Chicago, ECF No. 318). Given the volume of the record in the Sirazi/PE Chicago matter, Defendants’ pleadings in the District Court referred to pleadings and orders in the prior litigation by their ECF docket number. For the ease of this Court’s reference, Defendants would be pleased to submit each of those pleadings here upon request.
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B. The Instant Allegations
On December 5, 2012, Plaintiff—represented by the very same lawyers who represented
PE Chicago in the Sirazi/PE Chicago matter and who signed and approved the settlement agreement as to form—filed the instant lawsuit, asserting the very same claims that PE Chicago settled: unjust enrichment, fraud, conspiracy to defraud, aiding and abetting a breach of fiduciary duty, and violations of the Illinois Uniform Fraudulent Transfer Act. As in PE Chicago’s complaint, Plaintiff’s core allegation in this lawsuit is that “Defendants conspired with Tony
Rezko to acquire PE Chicago’s entire interest in the Rezko-Citadel partnership and at a price far less than the fair value of such interest, and to funnel the proceeds of the transaction to Rezko personally, thereby depriving PE Chicago, and those with interests in PE Chicago, of the money to which they were rightfully due.” A1–2. And by Plaintiff’s own admission, “PE Chicago’s tort claims”—which PE Chicago settled and released just weeks before Plaintiff filed the instant complaint—were “the very claims [she] advanced here.” AOB 5 (internal punctuation omitted).
Indeed, the factual bases for Plaintiff’s and PE Chicago’s claims, and the focus on injury allegedly sustained by PE Chicago, are virtually identical:
Claims Asserted by Basis for Claims Asserted by Basis for Claims Asserted by Massuda and PE Chicago Massuda (emphases added) PE Chicago (emphases added)
Count I: Unjust Enrichment “Defendants took advantage of “Panda Express took advantage the circumstances that Tony of the circumstances that Tony Rezko was in with regard to Rezko was in with regard to his his distressed financial distressed financial situation situation and extensive legal and extensive legal troubles to troubles to purchase PE purchase PE Chicago’s interest Chicago’s interest in Rezko- in Rezko-Citadel at a price well Citadel at a price well below below its fair value.” SuppA 73 its fair value.” A15. (citing Sirazi/PE Chicago First Amended Compl. ¶ 48).
Count II: Fraud “Plaintiff alleges that “Plaintiffs allege that Defendants intentionally Defendants intentionally
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defrauded Dr. Massuda, PE defrauded Sirazi, PE Chicago Chicago and Enterprises out of and Enterprises out of the fair the fair market value of PE market value of PE Chicago’s Chicago’s 50% interest in the 50% interest in the Rezko- Rezko-Citadel partnership.” Citadel partnership.” SuppA A16. 73–74 (citing Sirazi/PE Chicago First Amended Compl. ¶ 55).
Count III: Conspiracy to “At a time specifically “At a time specifically unknown Defraud unknown to Plaintiff, but on to Plaintiffs, but on information information and belief around and belief around May-June of May of 2006, Defendants and 2006, Defendants and Tony Tony Rezko entered into an Rezko entered into an agreement and conspiracy to agreement and conspiracy to defraud PE Chicago and defraud PE Chicago and Enterprises, and those with Enterprises, and those with interests in PE Chicago and interests in PE Chicago and Enterprises, of the fair value of Enterprises, of the fair value of their interest in the Rezko- their interest in the Rezko- Citadel partnership.” A19. Citadel partnership.” SuppA 74 (citing Sirazi/PE Chicago First Amended Compl. ¶ 65).
Count IV: Aiding and “Defendants knowingly “Defendants knowingly Abetting a Breach of participated, assisted in, and participated, assisted in, and Fiduciary Duty benefited from, Tony Rezko’s benefited from, Tony Rezko’s breaches of his fiduciary . . . breaches of [his] fiduciary duties.” A21. duties.” SuppA 74 (citing Sirazi/PE Chicago First Amended Compl.¶ 77).
Count V: Violation of “The transfer of PE Chicago’s “The transfer of PE Chicago’s Illinois Uniform Fraudulent 50% interest in Rezko-Citadel 50% interest in Rezko-Citadel Transfer Act—Actual Fraud was made with the actual was made with the actual intent intent to delay, hinder, and/or to delay, hinder, and/or defraud defraud PE Chicago and PE PE Chicago and PE Chicago’s Chicago’s and Enterprises’ and Enterprises’ creditors, creditors, including Dr. including Sirazi.” SuppA 74 Massuda.” A22. (citing Sirazi/PE Chicago First Amended Compl. ¶ 80).
Count VI: Violation of “Panda Express did not “Panda Express did not provide Illinois Uniform Fraudulent provide PE Chicago or PE Chicago or Enterprises with Transfer Act—Constructive Enterprises with a reasonably a reasonably equivalent value, Fraud equivalent value, as defined in as defined in 740 ILCS I60/4(a), 740 ILCS 160/4(a), in in exchange for the transfer of
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exchange for the transfer of PE PE Chicago’s 50% interest in Chicago’s 50% interest in the the Rezko-Citadel partnership.” Rezko-Citadel partnership.” SuppA 74 (citing Sirazi/PE A25. Chicago First Amended Compl. ¶ 94).
Plaintiff also asserted a fraud claim alleging that, in April 2006—months before the transaction at issue—she and her husband “informed Panda Express that she was suing Tony
Rezko, Enterprises, and other business entities that he controlled for monies owed to her,” and
“inquired whether Panda Express had an interest in buying her stake in Enterprises.” A9.
According to Plaintiff, Panda’s general counsel responded to this unsolicited inquiry by telling
Plaintiff and her husband “that Panda Express was not interested and that her interest in
Enterprises . . . was worthless.” Id. The complaint contains no allegations or facts sufficient to establish that Panda made this statement with an intent to induce her to take action, that she relied on this statement in any way, or that that this statement caused her to suffer damages. See id. Nor does the complaint plead facts demonstrating that Plaintiff’s minority “stake in
Enterprises” was in fact worth anything to Defendants, given that Rezko still would have had control over PE Chicago. See id.
C. The District Court’s Order
Defendants moved to dismiss the complaint on the grounds that Plaintiff’s lawsuit was an improper derivative suit asserting claims that PE Chicago had already settled and released, that the claims were time-barred, and the claims failed on the merits in any event. SuppA 1–27.
After Defendants’ motion was fully briefed, the District Court asked for supplemental briefing from both parties concerning the scope of release granted by PE Chicago when it settled the
Sirazi/PE Chicago litigation, and also concerning Plaintiff’s suggestion that Defendants previously had argued that PE Chicago did not have certain claims.
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The District Court dismissed Plaintiff’s complaint in its entirety. SA8–10. The District
Court correctly held that “any harm that Massuda suffered was derivative of the injury sustained by PE Chicago for allegedly not having received fair market value for its assets,” and, except for her fraud claim, “Massuda alleges no injury independent of that suffered by PE Chicago,” such that “Massuda’s claims are derivative.” SA3. “Based on the plain language of the Settlement
Agreement” between PE Chicago and Defendants, the District Court “conclude[d] that
Massuda’s claims, which all ‘relat[e] to’ the Rezko-Citadel partnership . . . are actually those of
PE Chicago [and] are barred.” SA5.
The District Court also rejected Plaintiff’s argument that Defendants were judicially estopped from asserting that Plaintiff’s claims were derivative and that Plaintiff therefore lacked standing. Plaintiff argued that estoppel should apply because, in the Sirazi/PE Chicago lawsuit,
“Defendants argued that PE Chicago could not assert the claims that Massuda asserts here because it was a party to the transaction at issue and could not have been deceived by it.” SA3.
The District Court, however, explained that “the standing issue and the merits issue are two different inquiries,” and found that “Defendants in the Sirazi[/PE Chicago] case did not assert that PE Chicago lacked standing; instead, they argued that the claims had no merit because PE
Chicago was a party to the transaction.” SA3–4. The court concluded that “the positions are not inconsistent,” and “[s]imply because another court held that PE Chicago’s tort claims had no merit does not mean that it is not the proper party to assert them.” SA4.
The District Court held that the only claim asserted by Plaintiff that was individual rather than derivative was her fraud claim to the extent it was based on Panda’s purported statement to her and her husband that her indirect interest in PE Chicago was “worthless.” SA9. The District
Court dismissed that theoretically individual claim with leave to amend, because Plaintiff
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“fail[ed] to point to any facts in support of her claim that Defendants made the alleged statement
[that her interest in Enterprises was ‘worthless’] intending that it would induce [her] to act, that
she relied on the truth of the statement, or that she suffered any damages as a result of the
allegedly fraudulent statement.” SA8. In addition, the court found that Plaintiff “fail[ed] to
plead the claim with particularity including alleging who supposedly made the statement to her,
where or how it was made,” and that, “to the extent [Plaintiff] attempts to plead fraud by
omission, she has failed to allege facts showing that Defendants were under a duty to disclose
material facts to her.” Id. Plaintiff declined the District Court’s invitation to amend, choosing
instead to stand on her fraud claim as pleaded. SuppA 85–86.
Accordingly, the District Court dismissed Plaintiff’s complaint in its entirety and with
prejudice. This appeal followed.
V. SUMMARY OF ARGUMENT
The District Court’s decision was correct and should be affirmed. First, Plaintiff does
not allege a single injury to herself that does not depend on PE Chicago’s being harmed by its
supposed failure to receive the value to which it was allegedly entitled for its interest in the
Rezko-Citadel partnership. The claims Plaintiff asserts are therefore derivative under a
straightforward application of the standard the Delaware Supreme Court set forth in Tooley—a
point she fastidiously refuses to address in her opening brief. Contrary to Plaintiff’s new
contention on appeal, she does not bring the kind of direct claim recognized in Gentile v.
Rossette, 906 A.2d 91 (Del. 2006). As the Gentile Court itself recognized, such claims “arise[]
only” with allegations far different than Plaintiff’s—i.e., where an “overpayment” is made in the
form of “corporate shares” issued to a controlling shareholder, which injures minority investors
“directly” by expropriating the “economic value and voting power” of their shares. A
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controlling shareholder expropriating minority shareholders’ relative voting power directly injures them, without regard to any injury suffered by the company. But Plaintiff here alleges no such direct injury to voting power, and any economic harm she claims flowed exclusively through injury to the company from alleged harm to its asset. This case does not involve an overpayment of company shares, let alone shares with voting rights or shares that Plaintiff even owned, and not a single case from the Delaware Supreme Court (or any other court) has ever extended Gentile to hold that all alleged breaches by controlling shareholders gave rise to direct claims. The claims Plaintiff asserts are derivative, and she cannot litigate them on the company’s behalf because (among other things) the company already settled and released them.
Second, the District Court correctly concluded that Defendants’ arguments in this case
(that the claims are derivative) are entirely consistent with their arguments in the prior case (that
PE Chicago’s claims failed on the merits). The court therefore properly rejected Plaintiff’s hollow argument that Defendants were judicially estopped from challenging her standing to sue.
Finally, the District Court properly dismissed Plaintiff’s supposedly individual fraud claim for failure to plead intent, reliance, or damages flowing from Panda’s alleged statement that Plaintiff’s shares in Enterprises were “worthless” to Panda. Plaintiff’s opening brief simply ignores her own failure and inability to plead the essential elements of intent, reliance, and damages. Indeed, when the District Court gave Plaintiff leave to amend these allegations if she could, she chose not to do so.
VI. ARGUMENT
A. The District Court Correctly Dismissed the Claims Plaintiff Asserts Because They Are Derivative And Were Released By PE Chicago.
1. The Claims Are Derivative Under Tooley.
As the District Court held, and as Plaintiff now concedes, AOB 14, this case is governed
11 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (19 of 129)
by the Delaware Supreme Court’s seminal decision in Tooley v. Donaldson, Lufkin & Jenrette,
Inc., 845 A.2d 1031, 1038 (Del. 2004). Tooley holds that a shareholder can bring a claim
directly on her own behalf, as opposed to derivatively on behalf of the company, only by
properly alleging she suffered some harm that is “independent of any injury to the corporation.”
Id.3 “The mere fact that the alleged harm is ultimately suffered by, or the recovery would ultimately inure to the benefit of, the stockholders does not make a claim direct under Tooley.”
Feldman v. Cutaia, 951 A.2d 727, 733 (Del. 2008). Under Tooley, “[t]he stockholder’s claimed
direct injury must be independent of any alleged injury to the corporation.” 845 A.2d at 1039.
“The stockholder must demonstrate that the duty breached was owed to the stockholder and that
he or she can prevail without showing an injury to the corporation.” Id. (emphases added); see
also id. at 1037 (rejecting attempt to distinguish direct from derivative actions based on whether
“the injury falls equally on all shareholders” as “confusing and inaccurate”), cited in SA4.
Here, Plaintiff’s complaint makes clear at every turn that the claims she asserts derive wholly from injury supposedly suffered in the first instance by PE Chicago as a result of the sale of its partnership asset. E.g., A1, 15, 16, 18, 19, 24. These claims are derivative because they do not allege even a single injury to Plaintiff “independent” of the harm PE Chicago supposedly suffered. SA3; Tooley, 845 A.2d at 1039; Kramer v. W. Pac. Indus., Inc., 546 A.2d 348, 353–54
& n.7 (Del. 1988). Instead, every single claim is expressly predicated on the sale of “PE
3 The same rules apply where, as here, the entity at issue is a limited liability company. The “derivative suit is a corporate concept grafted onto the limited liability company form,” Elf Atochem N. Am. v. Jaffari, 727 A.2d 286, 293–94 & n.40 (Del. 1999), and “case law governing corporate derivative suits is equally applicable to suits on behalf of an L.L.C,” VGS, Inc. v. Castiel, 2003 WL 723285, at *11 (Del. Ch. Feb. 23, 2003). See also AOB 14; G & S Holdings LLC v. Cont’l Cas. Co., 697 F.3d 534, 541–42 (7th Cir. 2012) (affirming dismissal pursuant to Fed. R. Civ. P. 12(b)(1) where the alleged “injury to the plaintiffs stems from the injury to [the company], and is derivative not direct”).
12 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (20 of 129)
Chicago’s 50% interest in Rezko-Citadel.”4 As the District Court held, this is exactly the kind of claim that depends on an injury to the company and therefore is solely derivative under Tooley.
E.g., SA2–3, 5, 8–9. “[A]ny harm that Massuda suffered was derivative of the injury sustained by PE Chicago for allegedly not having received fair market value for its assets.” Id. This is because Plaintiff’s theory of damages is that PE Chicago (a subsidiary of the company she actually invested in) wrongly lost its “only real asset” (its interest in the Rezko-Citadel partnership), and that the repercussions reverberated up the chain, causing lost profits and proceeds to PE Chicago, and thus to Enterprises, and thus to Plaintiff.5 In holding that Plaintiff’s claims were “disfavored” “attempts to recast derivative claims as direct,” SA4, the District Court faithfully applied Tooley and numerous other controlling Delaware authorities, and its decision should be affirmed.6
4 E.g., A15, 16 (Count I) (emphasis added); accord, e.g., A16 (Count II); A19 (Count III); A21 (Count IV); A22 (Count V); A25 (Count VI). 5 E.g., A16 (“Defendants intentionally defrauded Dr. Massuda, PE Chicago and Enterprises out of the fair market value of PE Chicago’s 50% interest in the Rezko-Citadel partnership.”); A19 (“Defendants and Tony Rezko . . . caused PE Chicago to transfer its 50% interest in the Rezko- Citadel partnership to Panda Express at a price that was well below fair value, to the detriment of PE Chicago and Enterprises and those who have interests in PE Chicago and Enterprises.”). 6 E.g., Feldman, 951 A.2d 727 at 734-35 (reaffirming that “claims of mismanagement resulting in a decrease in the value of corporate stock are derivative in nature”); Metro. Life Ins. Co. v. Tremont Grp. Holdings, Inc., No. Civ. A. 7092–VCP, 2012 WL 6632681, at *8 (Del. Ch. Dec. 20, 2012); Ravenswood Inv. Co., L.P. v. Winmill, No. Civ. A. No. 3730–VCN, 2011 WL 2176478, at *2, *6 (Del. Ch. May 31, 2011) (claims were derivative where shareholders allegedly had “breached their fiduciary duties to the class” by causing company to sell its “50% interest” in subsidiary, through transaction that allowed managers to “improperly receive compensation . . . that should have instead gone to shareholders”); see also, e.g., Kramer, 546 A.2d at 350-54 & nn.2, 7 (claims were derivative when defendants with “large stock holdings” allegedly “violated their fiduciary duty to the [shareholder] class of candor, loyalty, and due care” by “diverting . . . sale proceeds” to themselves); In re NYMEX S’holder Litig., 2009 WL 3206051, at *9 (Del. Ch. Sept. 30, 2009) (“A breach of fiduciary duty” claim alleging that the company was “precluded from . . . maximiz[ing] the return on its assets” is derivative because “the company suffers the harm”); In re First Interstate Bancorp Consol. S’holder Litig., 729 A.2d 851, 864 (Del. Ch. 1998) (where “claims of primary liability . . . belong to the corporation and could only be maintained in a derivative capacity, that finding logically applies with equal force to the alleged claims of secondary liability” against third party).
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2. Gentile Does Not Change the Claims’ Derivative Characterization.
Because Plaintiff suffered no independent injury, she attempts to side-step Tooley’s
injury-based analysis. She relies on a single, inapposite case, Gentile v. Rossette, 906 A.2d 91
(Del. 2006), which she now claims is “on all fours” with this case even though she did not even
cite it before the District Court.7 As discussed below, Gentile claims represent a narrow exception to Delaware’s usual treatment of “corporate overpayment” cases, which “[n]ormally
. . . are treated as [alleging] harm solely to the corporation and, thus, are regarded as derivative.”
906 A.2d at 99. Gentile claims “arise[] only” when a controlling shareholder receives an overpayment in the form of company shares that dilutes the relative economic and voting power of the shares held by minority shareholders. Id. at 100. In that limited circumstance, where a controlling shareholder directly expropriates minority shareholders’ relative economic and voting power by granting to himself excessive additional shares, minority shareholders are harmed directly and uniquely, and independent of any injury to the company. But that situation is not present here, and therefore Gentile does not apply.
a. Gentile Is Inapposite on Its Face.
As an initial matter, unlike Gentile, this is not even an overpayment case. Plaintiff’s entire complaint arises from the sale of PE Chicago’s interest in the partnership, allegedly for too little consideration. A1–26. This is a straightforward claim that the transaction “constitutes a waste of corporate assets”—a familiar type of claim that Delaware courts have always viewed exclusively as derivative. Tooley, 845 A.2d at 1038; Kramer, 546 A.2d at 353.8
7 “It is axiomatic that an issue not first presented to the district court may not be raised before the appellate court as a ground for reversal.” E.g., Economy Folding Box Corp. v. Anchor Frozen Foods Corp., 515 F.3d 718, 720 (7th Cir 2008). 8 See also, e.g., Avacus Partners, L.P. v. Brian, 1990 WL 161909, at *7 (Del. Ch. Oct. 24, 1990) (“Claims of waste will always be derivative . . . .”); Balotti & Finkelstein, The Delaware Law of (Cont'd on next page)
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Moreover, whatever corporate waste Plaintiff alleges has nothing to do with the issuance
of company shares to a controlling shareholder, and thus in no way entails the direct taking of
economic value and voting rights from minority shareholders, both of which Gentile’s narrow exception requires. Gentile claims have two elements, neither of which is present here:
(1) a stockholder having . . . control causes the corporation to issue “excessive” shares of its stock in exchange for assets of the controlling stockholder that have a lesser value; and (2) the exchange causes an increase in the percentage of the outstanding shares owned by the controlling stockholder, and a corresponding decrease in the share percentage owned by the [minority] shareholders.
906 A.2d at 100 (emphases added). As the Delaware Supreme Court explained, “[b]ecause the shares representing the ‘overpayment’ embody both economic value and voting power, the end result of this type of transaction is an . . . expropriation . . . of economic value and voting power from the [minority] shareholders to the majority or controlling stockholder.” Id. (emphasis
added). “As a consequence” of this “direct” “expropriation” of relative value and voting power
(not present here) the minority shareholders “are harmed, uniquely and individually,” and
therefore they can sue directly, on their own behalf. Id.
Though Plaintiff does not mention it, the Delaware Supreme Court held that a Gentile
claim “arises only” when its core requirement is present—the “overpayment” to the controlling
shareholder must come in the form of “shares” in the company, directly expropriating the
“economic value and voting power” of the company shares held by minority shareholders. 906
A.2d at 100 & n.20 (emphases added). Overpayment in shares is critical. “Unlike the typical
‘overpayment’ transaction, where the form of overpayment (cash or stock) does not matter [and
(Cont'd from previous page) Corporations and Business Organizations § 13.10 (2011) (“A claim . . . for alleged breaches of fiduciary duty which caused injury to the corporation and its stockholders as a whole remains derivative, as does a claim that a particular transaction constitutes a waste of corporate assets.”).
15 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (23 of 129)
the claim is solely regarded as derivative], in this atypical type of transaction, the dual character
of the harm, and of the [dual derivative and direct] claims resulting from that harm, arise where
the overpayment takes the form of issued corporate stock.” Id. n.21 (emphasis added).
Plaintiff’s complaint alleges no such thing. She does not allege that shares in PE Chicago were issued to the controlling shareholder (Rezko) for too little consideration, or even that she owned shares in PE Chicago at all. Instead, Plaintiff merely protests PE Chicago’s sale of its interest in Rezko-Citadel, a partnership in which Plaintiff held no direct interest. AOB 14–16.
Gentile’s express limitations are fatal to Plaintiff’s appeal.
b. No Court Has Ever Extended Gentile to Claims Like Plaintiff’s.
Moreover, no court has expanded Gentile in the manner Plaintiff urges here. The
Delaware Supreme Court has carefully adhered to the limitations it articulated in Gentile and confined its application to the particular “species” of claims for overpayment via the issuance of company shares “upon which [the Gentile] doctrine rests.” Gatz v. Ponsoldt, 925 A.2d 1265,
1278, 1280 (Del. 2007) (Gentile requires expropriation “by means of a stock issuance” to the controlling shareholder, whether directly or in “substance”); Feldman, 951 A.2d at 732 n.26
(affirming dismissal of claims as derivative and stating that a Gentile claim arises where controlling stockholder expropriates “both economic value and voting power” from minority shareholders); Loral Space & Communications, Inc. v. Highland Crusader Offshore Partners,
L.P., 977 A.2d 867, 869–70 (Del. 2009) (allowing Gentile claims entailing overpayment of
“shares” that embodied “both economic value and voting power”).9
Courts nationwide also have properly constrained Gentile’s application. The U.S.
9 Cf. Rhodes v. Silkroad Equity, LLC, No. Civ. A. 2133-VCN, 2007 WL 2058736, at *5 (Del. Ch. July 11, 2007) (applying Gentile exception where the “true substantive effect” of transactions was “‘extraction’ of economic value and residual voting power” from minority shareholders).
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District Court for the District of Maryland, for example, recently held that Gentile’s “narrow”
exception did not apply even where a controlling shareholder had acquired stock without
providing adequate consideration to the company, because the allegations “rest[ed] solely on a
purported loss in the economic value of [the minority shareholder’s] ownership stake rather than
any loss of voting power.” Innovative Therapies, Inc. v. Meents, No. DKC 12-3309, 2013 WL
2919983, at *5 (D. Md. June 12, 2013). As the court explained, “the Delaware Supreme Court
has emphasized . . . that the exception established by Gentile is limited to situations involving
‘transactions that resulted in an improper transfer of both economic value and voting power from
the minority stockholder to the controlling shareholder’”—of which Plaintiff here alleges neither.
Id. (citing Feldman, 951 A.2d at 732 n.26) (emphasis in original). See also Joe W. & Dorothy
Dorsett Brown Foundation v. Frazier Healthcare V, L.P., 889 F. Supp. 2d 893, 899-900 (W.D.
Tex. 2012) (“narrow” Gentile exception did not apply even where controlling shareholder was overpaid with stock, because it had not obtained “exclusive benefit of increased equity ownership and voting power”); Nikoonahad v. Greenspun Corp., No. C09-02242, 2010 WL 1268124, at *5
(N.D. Cal. Mar. 31, 2010) (Gentile did not apply where company “overpaid” for stock it repurchased as opposed to being undercompensated for stock it issued); In re CD Liquidation
Co., 462 B.R. 124, 132-33 (D. Del. Bnkpcy. 2011) (claims based on “decrease in share value”
were “derivative” and not within Gentile). Courts have consistently recognized that reading
Gentile in the manner Plaintiff suggests—i.e., to apply whenever a controlling stockholder
allegedly commits a tort that ultimately harms the minority—“would swallow the general rule
. . . and would greatly cast doubt on the continuing validity of the Tooley framework. Neither of
these outcomes is warranted.” Beckham v. Keith, 2011 WL 9557991, at *4 (Mass. Super. Ct.
June 15, 2011) (quoting Feldman v. Cutaia, 956 A.2d 644, 657 (Del. Ch. 2007)).
17 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (25 of 129)
Not a single published decision from any court has allowed a shareholder to bring a direct
claim under Gentile absent allegations that an improper issuance of undervalued stock impaired
both the economic value and the voting power of the shareholder’s own shares. This Court
should not be the first to ignore Gentile’s limitations and dramatically expand this narrow
exception to swallow and overrule Tooley. And it certainly should not do so on the purported
ground that “Massuda’s only option and ability to seek redress is to pursue a direct action against
Panda.” AOB 16. That demonstrably false assertion is legally insufficient to state a Gentile
claim, and it also ignores that Plaintiff is free (though her counsel probably is not) to pursue a
claim against PE Chicago for whatever share of the settlement proceeds to which she is entitled.
Plaintiff’s argument before this Court is not really that she has a Gentile claim—she
obviously does not, given that this is not an overcompensation case and there was no direct
expropriation from shareholders but rather alleged harm to the company. Rather she claims that
it is close enough simply because she alleges some sort of wrongdoing by a controlling
shareholder (Rezko) that ultimately harmed her. AOB 14-16. Plaintiff is wrong. Under Tooley,
Plaintiff’s claims are plainly derivative, as she suffered no injury independent of PE Chicago.
3. PE Chicago Settled and Released the Claims.
Having correctly concluded that Plaintiff’s claims were derivative, the District Court was
also correct in dismissing those derivative claims with prejudice, because PE Chicago settled and
released all its claims in the General Release and Settlement Agreement that resolved the
Sirazi/PE Chicago matter. Metro. Life Ins., 2012 WL 6632681, at *9–13 (classifying
purportedly direct claims as derivative and dismissing because company had settled them); First
Interstate Bancorp, 729 A.2d at 865 n.11 (dismissing derivative action where “any potential claim” by the company “was released in the Settlement Agreement”); Allied Artists Pictures
Corp. v. Baron, 413 A.2d 876, 880 (Del. 1980) (“[A]ction that cures the alleged wrong to the
18 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (26 of 129)
corporation[] . . . moots or settles the [derivative] lawsuit”).10
With the advice of the same counsel that represent Plaintiff here, PE Chicago released all
“disputes, claims, causes of action, [or] actions . . . arising from all matters, facts, events and circumstances relating to the Rezko-Citadel Partnership[.]” SuppA 56–57.11 It is beyond dispute that the claims Plaintiff seeks to pursue in this action “relat[e] to” the Rezko-Citadel Partnership.
Indeed, Plaintiff’s complaint refers to the Rezko-Citadel partnership 34 times, and all of her claims are founded on the purchase of PE Chicago’s partnership interest. Those claims thus fit squarely within the scope of the release granted by PE Chicago.12
Tacitly conceding that claims cannot be litigated derivatively after a company settles them, Plaintiff falls back on musings about whether “a company [can] settle claims it never possessed in the first instance.” AOB 19. However, Plaintiff confuses “possess[ing] claims” with possessing meritorious claims. As explained below, PE Chicago did possess its claims in the sense that it had standing to bring them. Those claims, however, failed on the merits (not for lack of standing), in a series of rulings that PE Chicago—represented by the same lawyers who
10 In addition, Plaintiff did not even to attempt to comply with Federal Rule of Civil Procedure 23.1, which constitutes an alternate basis for affirmance. See, e.g., Nunez-Moron v. Holder, 702 F.3d 353, 358 n.10 (7th Cir. 2012); Braddock v. Zimmerman, 906 A.2d 776, 784 (Del. 2006). 11 Section A of the Recitals to the Settlement Agreement identified the claims that PE Chicago had asserted in that matter: “unjust enrichment, fraud, civil conspiracy, breach of fiduciary duty, breach of contract, . . . and violations of the Illinois Fraudulent Transfer Act . . . based upon the transfer of PE Chicago’s 50% interest in the Rezko-Citadel Partnership in June 2006.” SuppA 53 [General Release & Settlement Agreement]. In Section 2.1 of the Settlement Agreement, PE Chicago “compromise[d] and settle[d]” each of these claims, and “agree[d] that this Settlement Agreement shall constitute a bar to [its] making any Claims, including filing of any other action related to or arising under the Rezko-Citadel Partnership at any time or for any reason.” SA5 (emphasis added). Further, in Section 4.1 of the Settlement Agreement, PE Chicago agreed to “release, relieve, waive, relinquish and discharge Defendants” from any and all “disputes, claims, causes of action, [or] actions . . . arising from all matters, facts, events and circumstances relating to the Rezko-Citadel Partnership[.]” SuppA 56–57. 12 It is irrelevant that the release does not expressly reference investors, and that Plaintiff did not participate in it. AOB 16. PE Chicago released its claims, and an indirect investor like Plaintiff cannot derivatively bring the claims PE Chicago released.
19 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (27 of 129)
represent Plaintiff in this case—was challenging in a post-trial motion still pending at the time of
settlement. SuppA 78 (citing Sirazi/PE Chicago, ECF No. 344 at 10 (“Plaintiffs’ Unjust
Enrichment Claims Should Be Reinstated.”)); id. (citing Sirazi/PE Chicago, ECF No. 344 at 13
(“All of PE Chicago’s Claims That Were Dismissed At Summary Judgment Should be
Reinstated”)); id. (citing Sirazi/PE Chicago, ECF No. 369 at 12 (“All of PE Chicago’s Claims
Should Be Reinstated”)).
Parties of course can, and regularly do, settle and release claims on which they did not
prevail before the district court but where they seek to reverse that result through post-trial
motions, appeal, or both. That is just what happened here. PE Chicago was free to release these
claims for whatever they were worth, and it explicitly did so in the Settlement Agreement, with
the advice and the signatures of the same lawyers who represent Plaintiff here. The District
Court was absolutely correct to prevent Plaintiff from re-litigating these same claims.
B. The District Court Was Well Within Its Discretion to Reject Judicial Estoppel.
Unable to meaningfully dispute the District Court’s conclusion that the claims she asserts
were derivative and already settled and released by PE Chicago, Plaintiff contends that
Defendants are judicially estopped from raising this point because Defendants argued, and the
Sirazi/PE Chicago court concluded, that PE Chicago’s claims failed on the merits. AOB 18–19.
The District Court acted well within its discretion in rejecting that tortured and unsupported
argument and the “extreme” implications it would entail. SA4.
Contrary to Plaintiff’s suggestion that it is a purely legal matter here, “[j]udicial estoppel
is a matter of equitable judgment and discretion, and [this Court] review[s] the [district] court’s
decision for an abuse of that discretion.” In re Knight-Celotex, LLC, 695 F.3d 714, 721 (7th Cir.
2012). In reviewing the exercise of that discretion, this Court “examine[s] three factors”: “(i)
whether the party’s positions in the two litigations are clearly inconsistent; (ii) whether the party
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successfully persuaded a court to accept its earlier position; and (iii) whether the party would derive an unfair advantage if not judicially estopped.” Wells v. Coker, 707 F.3d 756, 761 (7th
Cir. 2013). “The threshold for prevailing on a judicial estoppel argument regarding inconsistency is high.” Young v. Verizon’s Bell Atl. Cash Balance Plan, 667 F. Supp. 2d 850,
905–06 (N.D. Ill. 2009); see also Ogden Martin Sys. of Indianapolis, Inc. v. Whiting Corp., 179
F.3d 523, 528 (7th Cir. 1999) (judicial estoppel “may not be used to hamstring a litigant from advancing a particular position when this position is not clearly inconsistent with a prior position”). The District Court properly determined that Plaintiff had not even come close to crossing that threshold here, because there is no inconsistency whatsoever between Defendants’ argument in the Sirazi/PE Chicago case (that PE Chicago’s claims lacked merit) and their argument in this case (that Plaintiff lacks standing to assert PE Chicago’s already-released claims derivatively). Declining to apply the “extreme” doctrine of judicial estoppel on these facts was well within the District Court’s discretion. SA4.
1. PE Chicago’s Claims Were Addressed on the Merits.
As with her argument that PE Chicago could not have settled its claims, Plaintiff’s
judicial estoppel argument confuses the question whether a party has standing to assert claims
and the very different question whether those claims have merit. She argues that she can re-
litigate the very same claims that PE Chicago brought, settled, and released in Sirazi/PE Chicago
because “[o]n summary judgment in Sirazi, Panda argued, and won its argument, that PE
Chicago had no such claims.” AOB 7. Plaintiff is wrong. To the extent she hoped the deliberately vague phrase “had no such claims” would create the misimpression that the
Sirazi/PE Chicago court dismissed PE Chicago’s claims because they belonged to investors like
Plaintiff, her position is belied by Defendants’ pleadings and the court’s actual holdings in the
Sirazi/PE Chicago matter—none of which Plaintiff quotes or even cites. In fact, the Sirazi/PE
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Chicago court rejected PE Chicago’s claims on the merits, not for lack of standing.
First, in granting judgment as a matter of law for Defendants on PE Chicago’s unjust
enrichment claim, the Sirazi/PE Chicago court concluded there was “no evidence to support” PE
Chicago’s theory—repeated by Plaintiff here—that PE Chicago was somehow deprived of
partnership distributions it was supposedly due. SuppA 82–83; A15.
As to its fraud claim, PE Chicago made two allegations: first, “that the defendants made
false statements indicating that the price they were paying for PE Chicago’s interest in Rezko-
Citadel was a fair one,” SuppA 76 (citing Sirazi/PE Chicago, ECF No. 228 at 9); and second,
“that defendants concealed the sale of PE Chicago’s interest in Rezko-Citadel,” id. (citing
Sirazi/PE Chicago, ECF No. 228 at 10). The court rejected the claim based on false statements
about fair market value because “PE Chicago was equally a partner in Rezko-Citadel and could
have valued its interest” and “defendants did not owe PE Chicago a fiduciary duty at the time of
the sale.” Id. The court rejected the claim based on concealment because PE Chicago “was a
party to the transaction” and thus knew its terms. Id. (citing Sirazi/PE Chicago, ECF No. 228 at
12). Because the court granted summary judgment on PE Chicago’s fraud claim, it also granted summary judgment for Defendants on PE Chicago’s claim for conspiracy to defraud. See id.
(citing Sirazi/PE Chicago, ECF Nos. 227; 228 at 9, 21).
The court also entered judgment for Defendants on PE Chicago’s claim for aiding and abetting a breach of fiduciary duty. SuppA 77 (citing Sirazi/PE Chicago, ECF No. 318).
Although the docket reflects no written order explaining the court’s reason for dismissing this claim, there is no indication that it was for lack of standing or that Defendants sought dismissal on that basis.
Lastly, the Sirazi/PE Chicago court granted summary judgment for Defendants on PE
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Chicago’s fraudulent transfer claims. The court “[a]ssum[ed] PE Chicago may bring an actual fraudulent transfer claim,” but found that the “claim [was] time-barred.” SuppA 77 (citing
Sirazi/PE Chicago, ECF No. 228 at 28). PE Chicago had not “move[d] to amend the complaint to make its claim until July 22, 2010 and did not file the amended complaint until November 10,
2010”—more than four years after “[t]he sale of PE Chicago’s interest occurred on June 1,
2006.” Id. PE Chicago’s constructive fraudulent transfer claim was time-barred for the same reason. Id. (citing Sirazi/PE Chicago, ECF No. 228 at 29).
That PE Chicago’s claims in the prior case failed on the merits has nothing to do with whether Plaintiff has standing to assert PE Chicago’s claims here, because, as the District Court explained, and as Plaintiff “agrees,” “the standing issue and the merits issue are two different inquiries.” AOB 18 (quoting SA3). And nothing in Sirazi/PE Chicago in any way contradicts the point Defendants are making now: that none of Plaintiff’s claims is “independent of any
[supposed] injury to [PE Chicago],” because all of those claims depend on the allegation that PE
Chicago was wrongfully deprived of its 50% interest in the Rezko-Citadel partnership. Tooley,
845 A.2d at 1038.13
2. Defendants’ Arguments Have Been Entirely Consistent.
Recognizing the weakness of her position, Plaintiff attempts to manufacture an
13 It is entirely unremarkable that Sirazi survived a motion to dismiss that argued that his claims, too, were derivative. AOB 16. During the pre-trial motion practice in Sirazi/PE Chicago, Defendants’ prior counsel did not cite Tooley or any Delaware case on this point, and the District Court (unsurprisingly, therefore) did not apply Delaware law—authority that Plaintiff now concedes is controlling, AOB 14. The prior proceeding is relevant in this respect (if at all) only because it demonstrates the consistency of Defendants’ arguments and defeats any possibility of judicial estoppel. See United States v. Christian, 342 F.3d 744, 748 (7th Cir. 2003) (refusing to apply judicial estoppel where positions were not “clearly inconsistent”). And in any event, the Sirazi/PE Chicago judgment was vacated, so it can have no preclusive effect here (and Plaintiff does not argue otherwise). See Pontarelli Limousine, Inc. v. City of Chicago, 929 F.2d 339, 340 (7th Cir. 1991) (“A vacated judgment has no collateral estoppel or res judicata effect under Illinois law.”).
23 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (31 of 129)
inconsistency by cobbling together a series of legal fallacies. Plaintiff contends that “because
Panda argues that Massuda’s claims are derivative,” Defendants argue that “only PE Chicago is
entitled to relief on Massuda’s tort claims,” while “[i]n essence, in the prior litigation Panda
argued, and succeeded, that PE Chicago was not entitled to relief on its claims.” AOB 19 (first
emphasis added). Plaintiff’s strained syllogism, however, is premised on an argument that
Defendants have never made (that PE Chicago was in fact “entitled to relief”), and on a principle
of “Delaware law” that does not exist—the deeply misguided, and indeed remarkable notion that
“a claim cannot be derivative if the company is not entitled to relief on such a claim.” AOB 18–
19. Tellingly, Plaintiff does not attempt to support that supposed rule with even a single citation.
Nor can she, because she is wrong.
Derivative claims, of course, often fail on the merits. See, e.g., Tooley, 845 A.2d at 1033
(affirming the dismissal of derivative claims where “the complaint does not set forth any claim
on which relief can be granted”); see also Metro. Life Ins. Co., 2012 WL 6632681, at *8
(characterizing claim as derivative and dismissing it as barred by res judicata); Agostino v. Hicks,
845 A.2d 1110, 1126 (Del. Ch. 2004) (same as to bar by bankruptcy code). Moreover, it is
axiomatic that “[t]he plaintiffs in a derivative action are in no better or stronger position than the corporation itself would be had it instituted the action, and any bar to an action by the corporation is also a bar to a derivative action by the stockholder.” 19 Am. Jur. 2d Corporations
§ 1949. Here, PE Chicago did institute an action against Defendants, and its claims failed on the
merits; it would make no sense if Plaintiff—an indirect shareholder in PE Chicago unable to
assert any injury beyond that to the company—could now re-litigate those claims derivatively. It
likewise makes no sense for Plaintiff to suggest that Defendants had been disingenuous merely
because other parties may have been in the past. AOB 18 n.6. And in any event, determinations
24 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (32 of 129)
in the Sirazi/PE Chicago litigation can have no preclusive effect here because they never became final: the Sirazi/PE Chicago judgment was vacated when the parties—including PE Chicago— settled and released their claims. Pontarelli Limousine, 929 F.2d at 340.
The District Court was correct to reject Plaintiff’s judicial estoppel argument, and this
Court should do the same.
C. The District Court Properly Dismissed Plaintiff’s Fraud Claim For Failure To Adequately Plead Intent, Reliance, and Damages.
Attempting to salvage the only claim that the District Court held not to be derivative and settled by PE Chicago, Op. at 4, Plaintiff contends that the District Court erred by ruling that she failed to state a claim for common-law fraud and failed to plead with the particularity required under Federal Rule of Civil Procedure 9(b). AOB 20-21. But in quibbling around the edges of the District Court’s opinion, Plaintiff elides the District Court’s core holding: that Plaintiff failed to plead any facts at all—let alone plead them with particularity—in support of three of the five elements of a fraud claim. SA8.14
The District Court again was correct. Plaintiff’s fraud claim comes nowhere close to
satisfying the rigorous requirements of Federal Rule of Civil Procedure 9(b), which requires that
a plaintiff “state with particularity the circumstances constituting fraud.” The elements of
Illinois common-law fraud are: “(1) a false statement of material fact; (2) defendant’s knowledge
that the statement was false; (3) defendant’s intent that the statement induce the plaintiff to act;
14 The absence of the necessary facts is not even the only difficulty with the fraud claim; it is also untimely. Although the District Court concluded that Plaintiff was bound by a statement she made in February 2007 that “the Panda Express restaurants [had] been fraudulently and secretly sold out from under [her] without any distribution of the proceeds to her,” the court concluded it could not determine on the pleadings whether Plaintiff’s December 2012 complaint was barred by the five-year statute of limitations. SA 6–7. However, if this Court were to reverse any portion of the District Court’s Order, the statute of limitations on the fraud claim (and all others, id. at 6 n.2) would remain a major hurdle for Plaintiff at summary judgment and trial.
25 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (33 of 129)
(4) plaintiff’s reliance upon the truth of the statement; and (5) plaintiff’s damages resulting from
reliance on the statement.” Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP, 475
F.3d 824, 841 (7th Cir. 2007) (citation and quotation marks omitted). Under Rule 9(b), factual
allegations must include “the who, what, when, where, and how” of the alleged fraud. Borsellino
v. Goldman Sachs Group, Inc., 477 F.3d 502, 507 (7th Cir. 2007) (emphasis added). To satisfy
this heightened standard, a plaintiff must plead, with particularity, “actual damages arising from her reliance on a fraudulent statement.” Swanson v. Citibank, N.A., 614 F.3d 400, 406 (7th Cir.
2010) (emphases added).
The District Court held that Plaintiff alleged only one statement by Panda that represented a possible independent basis for Plaintiff to bring a fraud claim on her own behalf: the purported statement to Plaintiff that her “interest in Enterprises and PE Chicago was
‘worthless.’” A17.15 However, as the District Court held, this claim fails for at least three
reasons: Plaintiff does not and cannot allege any facts suggesting (1) that Panda made this statement to Plaintiff intending that it would induce her to act, (2) that Plaintiff reasonably or even actually relied upon this statement, or (3) that she suffered damages as a result of relying on it. SA8.
Each of these defects represents an independent basis for affirming dismissal of the fraud claim. First, Plaintiff pleads no facts to square the incongruity in her timeline. On the face of the
complaint, Panda could not possibly have intended an April 2006 statement to induce Plaintiff to take (or fail to take) any action with respect to a transaction that Plaintiff alleges was not even
15 The other statement that Plaintiff alleged in support of her fraud claim, which the District Court properly dismissed as derivative, was “that the purchase price [Panda Express] offered for PE Chicago’s 50% interest in Rezko-Citadel represented a fair value.” A17. This statement was not even made to Massuda; it was allegedly made only to PE Chicago, and Plaintiff does not even attempt to allege (or argue on appeal) that Panda somehow intended it to induce her to act or that she relied on it.
26 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (34 of 129)
conceived of at the time and was not even proposed to Panda until May 2006. A9; AOB 20; see also Tricontinental, 475 F.3d at 841-42.
Nor does Plaintiff attempt to allege (even in conclusory fashion) that she actually or reasonably relied on any statement from Panda “to [her] detriment.” Prime Leasing Inc. v.
Kendig, 773 N.E.2d 84, 93 (Ill. 2002).16 Even in her attempt to insert additional facts into the
record via her opening brief, Plaintiff still does not even argue that she actually relied on the
supposedly false statement that her shares in Enterprises were “worthless.” AOB 20.
In addition, the statement bears no relationship at all to the damages Plaintiff alleges PE
Chicago (and therefore Enterprises, and therefore Plaintiff, derivatively) suffered—the transfer
of PE Chicago’s 50% interest in the Rezko-Citadel partnership to Panda for a below-market price. Plaintiff’s new theory on appeal that she was “harmed by not acting to protect her
[indirect] interests in the partnership,” AOB 21, is alleged nowhere in her complaint, let alone with particularity. And again, this theory has gaping holes that cannot be patched, much less with the “facts” she improperly attempts to insert into her brief on appeal. Id. Any individualized damages to Plaintiff from the alleged statement would depend on unpleaded shareholder rights to influence the business decisions of PE Chicago—which Plaintiff, an 11 percent owner in Enterprises, did not even have in Enterprises let alone in PE Chicago. SuppA
16 Plaintiff appears instead to fall back on a fraud-by-omission theory based on supposed “concealment of the transaction.” AOB 21. But as the District Court held, Plaintiff pleads no facts suggesting that Defendants had a duty to disclose anything to her, and Plaintiff has abandoned this theory on appeal by failing to argue otherwise. See Cyrus v. Town of Mukwonago, 624 F.3d 856, 864 (7th Cir. 2010) (an issue “unaddressed” is “therefore abandoned on appeal”); Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 571-72 (7th Cir. 2012) (“courts in Illinois have rarely found a special trust relationship” creating a “duty to speak” “in the absence of a more formal fiduciary one”); B A Mortg. & Int’l Realty Corp. v. Taylor, No. 84 C 7739, 1985 WL 1703, at *4 (N.D. Ill. June 7, 1985) (“normal, commercial transaction conducted at arm's length . . . will not generate any fiduciary duties”); Connick v. Suzuki Motor Co., 675 N.E.2d 584, 593 (Ill. 1996) (“In order to state a claim for fraudulent concealment, a plaintiff must allege that the defendant concealed a material fact when he was under a duty to disclose.”).
27 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (35 of 129)
42 (“The Manager [Rezko Concessions, Inc.] shall have full and exclusive power to manage and control the business and affairs of [Enterprises], and the Members [including Massuda] shall have no right to act on behalf of or bind [Enterprises].”).
Moreover, no particularized allegations even indicate that this purported statement was actionably false. “Ordinarily erroneous statements as to matters of opinion,” such as a seller’s
“representations of the value of property, do not amount to fraud.” Wilkinson v. Appleton, 190
N.E.2d 727, 730 (Ill. 1963); Prime Leasing, 773 N.E.2d at 92-93. A statement regarding value can support a fraud claim only when it “relates to some specific extrinsic fact materially affecting value, and where the fact is one peculiarly within the knowledge of the speaker.”
Wilkinson, 190 N.E.2d at 730. Here, Plaintiff has alleged only that Panda misrepresented its opinion that Massuda’s shares in Enterprises were “worthless.” A17. Plaintiff has not alleged that Panda made a representation of any kind relating to an extrinsic fact materially affecting the value of PE Chicago’s or Massuda’s interest, and certainly not one that was uniquely within
Panda’s control. Fed. R. Civ. P. 9(b). And just because Panda later acquired PE Chicago’s interest in the partnership, that does not mean that Plaintiff’s shares in Enterprises had value to
Panda. Becoming a minority investor in a corporate parent controlled by Tony Rezko, with no additional right to influence the affairs of the joint venture, is not remotely the same thing as severing ties with his companies entirely by buying out their interest in the partnership.
These defects are fatal to the fraud claim. Apparently recognizing this, Plaintiff oddly attempts to recast this claim on appeal as a claim for fraudulent transfer and thereby eliminate the five elements required for pleading common-law fraud. AOB 20-21 & n.7. Of course this is improper. The only cases cited by Plaintiff in support of her fraud claim, For Your Ease Only,
Inc. v. Calgon Carbon Corp., 560 F.3d 717, 721 (7th Cir. 2009) and Kennedy v. Four Boys
28 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (36 of 129)
Labor Servs. Inc., 664 N.E.2d 1088, 1093 (Ill. App. Ct. 1996), analyze claims brought under the
Illinois Uniform Fraudulent Transfer Act and are entirely inapposite to whether Plaintiff has
stated a claim for common-law fraud. Unlike the claim that is actually at issue—the common-
law fraud claim—the UFTA contains no requirement that a false statement be made with intent
to induce reliance, or that a plaintiff allege reasonable reliance or damages flowing from that
statement. Plaintiff tried separately to plead claims under the UFTA, and the District Court
properly found these claims to be derivative, because they alleged no injury apart from harm to
PE Chicago and Enterprises. SA4. In any event, whether Plaintiff stated a claim under the
UFTA (she did not)17 and whether Panda was a good faith purchaser (it was) is entirely irrelevant
to whether Plaintiff stated a claim for fraud. This argument is a red herring and provides no
basis for reinstating Plaintiff’s fraud claim.
Because, as the District Court found, facts required to support three of the five elements
of a fraud claim are entirely omitted from (and in some cases contradicted by) Plaintiff’s
complaint, Plaintiff’s fraud claim would fail even under the Rule 8 pleading standard, and it
certainly fails under the heightened standard of Rule 9(b). See Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face’ . . . . The plausibility standard . . . asks for more than a sheer probability that a defendant has acted unlawfully.”).
D. Leave to Amend Should be Denied.
Finally, Plaintiff’s request that this Court give her leave to amend should quickly be
denied. With respect to the fraud claim, the District Court’s dismissal originally was with leave
17 Plaintiff failed to state a claim under the UFTA because, among other reasons, she does not even qualify as a “creditor” for purposes of the statute. 740 Ill. Comp. Stat. 160/2(c), (d), (i).
29 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (37 of 129)
to amend. SA8–9. But Plaintiff chose to stand on the allegations in her initial complaint rather
than amend it, and she actually asked that the District Court dismiss her complaint with prejudice
so that she could take an immediate appeal. SuppA 85. When she “decided to forgo [her] opportunity to amend the complaint and instead to pursue an immediate appeal,” she made a
“strategic decision [that] meant that [her] case can be resuscitated only if [she] is able to convince this court that [she] had in fact properly stated [her fraud] claim[] in the form [it] took
before the district court in the unamended complaint.” Int’l Mktg., Ltd. v. Archer-Daniels-
Midland Co., 192 F.3d 724, 727 (7th Cir. 1999); see also Boland v. Engle, 113 F.3d 706, 714
(7th Cir. 1997) (a litigant who stands on her initial allegations and takes an immediate appeal
“must live with the consequences of [her] gamble” and may not be given the opportunity to
amend on remand). Allowing Plaintiff to amend her fraud claim “would only serve to defeat the
limits Congress has set on [this Court’s] interlocutory jurisdiction in 28 U.S.C. § 1292 and the
complementary final judgment requirement of 28 U.S.C. § 1291.” Int’l Mktg., 192 F.3d at 733.
As to her complaint more generally, Plaintiff waived her request to amend her claims by
failing to make it to the District Court, whether in her briefing or at oral argument. Farnham v.
Windle, 918 F.2d 47, 51 (7th Cir. 1990). She should not be allowed to raise the request belatedly
now, particularly in the absence of any indication that she could plead facts to save the claims.
30 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (38 of 129)
VII. CONCLUSION
The District Court correctly held that Plaintiff was attempting to derivatively litigate claims for injuries allegedly suffered by PE Chicago—claims that PE Chicago already settled and released. Plaintiff cannot avoid that fatal defect in her case by claiming that Panda should be estopped from even asserting it simply because Panda previously argued that PE Chicago’s claims lacked merit. Plaintiff also failed to adequately plead her fraud claim, and declined to amend when given leave to do so. This Court should affirm the District Court’s judgment.
Dated: November 12, 2013 Respectfully submitted,
PANDA EXPRESS, INC., PANDA RESTAURANT GROUP, INC., CITADEL- PANDA EXPRESS, INC., ANDREW CHERNG, and PEGGY CHERNG
By: /s/ Christopher D. Dusseault Christopher D. Dusseault One of Their Attorneys
GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue Los Angeles, California 90071 Tel.: (213) 229-7000 [email protected] Attorneys for Defendants-Appellees
31 Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (39 of 129)
CERTIFICATE OF COMPLIANCE
I certify that this appellee’s brief complies with the page and type-volume limitation set forth in Fed. R. App. P. 32(a)(7)(A–B) and Cir. R. 32(b), in that it contains 10,519 words according to the count provided by the Microsoft Word word-processing software. I also certify that this brief complies with the typeface requirements of Fed. R. App. P. 32(a)(7)(B)(iii) and
Cir. R. 32(b). This brief was prepared with Microsoft Word, using New Century Schoolbook, a proportionally-spaced typeface including serifs, with the body in 12-point font.
/s/ Christopher D. Dusseault Christopher D. Dusseault
GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue Los Angeles, California 90071 Tel.: (213) 229-7000 [email protected]
Attorneys for Defendants-Appellees
Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (40 of 129)
CERTIFICATE OF SERVICE
I am lead counsel for Defendants-Appellees Panda Express, Inc., Panda Restaurant
Group, Inc., Citadel-Panda Express, Inc., Andrew Cherng, and Peggy Cherng, and I hereby certify that I have caused a true and correct copy of the foregoing Brief to be served electronically upon counsel of record in compliance with Fed. R. App. P. 25 and Cir. R. 25.
Participants in the case who are registered CM/ECF users will be served by the CM/ECF system.
/s/ Christopher D. Dusseault Christopher D. Dusseault
GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue Los Angeles, California 90071 Tel.: (213) 229-7000 [email protected]
Attorneys for Defendants-Appellees
Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (41 of 129)
No. 13-2818
UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
Dr. Fortunee Massuda, Plaintiff-Appellant v.
Panda Express, Inc., Panda Restaurant Group, Inc., Citadel-Panda Express, Inc., Andrew Cherng and Peggy Cherng, Defendants-Appellees
Appeal From The United States District Court For the Northern District of Illinois, Eastern Division Case No. 12 CV 9683 The Honorable Ronald A. Guzman
DEFENDANTS-APPELLEES’ SUPPLEMENTAL APPENDIX
GIBSON, DUNN & CRUTCHER LLP Christopher D. Dusseault Alexander K. Mircheff 333 South Grand Avenue Los Angeles, California 90071 (213) 229-7000
EDWARDS WILDMAN PALMER LLP Michael Docketerman William R. Lee Tanya H. Miari 225 West Wacker Drive, Suite 3000 Chicago, Illinois 60606 (312) 201-2000 Attorneys for Defendants-Appellees Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (42 of 129)
INDEX
Defendants’ Memorandum of Points and Authorities in SuppA 1 Support of Motion to Dismiss Plaintiff’s Complaint (electronically filed February 1, 2013)
Rezko Enterprises LLC Agreement SuppA 29 (electronically filed February 1, 2013 as Exhibit D to Defendants’ Memorandum of Points and Authorities)
General Release and Settlement Agreement SuppA 53 (redacted; manually filed February 1, 2013 as Exhibit A to Defendants’ Memorandum of Points and Authorities)
Sirazi/PE Chicago ECF No. 318 SuppA 69 (manually filed February 1, 2013 as Exhibit B to the General Release and Settlement Agreement)
Supplemental Memorandum in Support of Defendants’ Motion SuppA 71 to Dismiss (electronically filed May 14, 2013)
Excerpts of Sirazi/PE Chicago Transcript SuppA 80 (electronically filed May 14, 2013 as Exhibit A to Supplemental Memorandum)
Plaintiff’s Status Report SuppA 85 (electronically filed July 23, 2013)
Case: 1:12-cv-09683 Document #: 23 Filed: 02/01/13 Page 1 of 28 PageID #:230 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (43 of 129)
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
DR. FORTUNEE MASSUDA, an Illinois Civil Action No. 12-CV-09683 resident and citizen, Honorable Ronald A. Guzman Plaintiff, v. PANDA EXPRESS, INC., a California corporation, PANDA RESTAURANT GROUP, INC. f/k/a PANDA MANAGEMENT COMPANY, INC., a California corporation, ANDREW CHERNG, a California resident and citizen, and PEGGY CHERNG, a California resident and citizen. Defendants.
DEFENDANTS’ MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS PLAINTIFF’S COMPLAINT PURSUANT TO FED R. CIV. P. 12(b)(1), 12(b)(6), 9(b), and 23.1
SuppA 1 Case: 1:12-cv-09683 Document #: 23 Filed: 02/01/13 Page 2 of 28 PageID #:231 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (44 of 129)
Table of Contents Page
I. INTRODUCTION AND BACKGROUND ...... 1
II. ARGUMENT...... 3
A. Plaintiff Lacks Standing to Sue Because the Claims Are Derivative of Claims that PE Chicago Has Already Settled and Released...... 4
1. Plaintiff Cannot Bring the Claims on Her Own Behalf...... 5
2. Plaintiff Cannot Bring the Claims Derivatively...... 8
B. The Claims are Time-Barred...... 10
1. The Limitations Periods Have Expired...... 10
2. The Limitations Periods Have Not Been Tolled...... 12
C. Each of the Causes of Action Fails to State a Claim...... 14
1. Plaintiff Has Failed to State a Claim for Unjust Enrichment...... 14
2. Plaintiff Has Failed to Adequately Plead a Claim for Fraud...... 15
3. Plaintiff Fails to Plead Facts Showing that Defendants Conspired to Defraud Her...... 16
4. Plaintiff Has Not Pleaded Facts Sufficient to Show that Defendants Aided or Abetted a Breach of Fiduciary Duty...... 18
5. Plaintiff Is Not a Creditor Under the UFTA as a Matter of Law...... 19
III. CONCLUSION...... 20
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Cases Adcock v. Brakegate, Ltd., 645 N.E.2d 888 (Ill. 1994)...... 17 Allied Artists Pictures Corp. v. Barron, 413 A.2d 876 (Del. 1980) ...... 8 Anderson v. Simon, 217 F.3d 472 (7th Cir. 2000) ...... 4, 11 Ashcroft v. Iqbal, 556 U.S. 662 (2009)...... 3, 13 Ass’n Benefit Servs., Inc. v. Caremark RX, Inc., 493 F.3d 841 (7th Cir. 2007) ...... 14 Avacus Partners, L.P. v. Brian, 1990 WL 161909 (Del. Ch. Oct. 24, 1990) ...... 6 B A Mortg. & Int’l Realty Corp. v. Taylor, 1985 WL 1703 (N.D. Ill. June 7, 1985)...... 14 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)...... 4, 13, 19 Blanchard v. EdgeMark Fin. Corp., 2001 WL 587861 (N.D. Ill. Mar. 12, 2001)...... 18 Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502 (7th Cir. 2007) ...... 15 Braddock v. Zimmerman, 906 A.2d 776 (Del. 2006) ...... 9 Burns Philp Food, Inc. v. Cavalea Cont’l Freight, Inc., 135 F.3d 526 (7th Cir. 1998) ...... 10 Carollo v. Irwin, 959 N.E.2d 77 (Ill. App. Ct. 2011) ...... 18 CDX Liquidating Trust v. Venrock Assocs., 640 F.3d 209 (7th Cir. 2011) ...... 19 Cede & Co. v. Technicolor, Inc., 542 A.2d 1182 (Del. 1988) ...... 8 Clark v. Robert W. Baird Co., 142 F. Supp. 2d 1065 (N.D. Ill. 2001)...... 10
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Clay v. Kuhl, 727 N.E.2d 217 (Ill. 2000)...... 13 Cleary v. Philip Morris Inc., 656 F.3d 511 (7th Cir. 2011) ...... 14 Connick v. Suzuki Motor Co., 675 N.E.2d 584 (Ill. 1996)...... 16 Craig v. Ontario Corp., 543 F.3d 872 (7th Cir. 2008) ...... 3 Doe v. Noe, 293 Ill. App. 3d 1099 (Ill. App. Ct. 1997) ...... 17 Elf Atochem N. Am. v. Jaffari, 727 A.2d 286 (Del. 1999) ...... 5 Feldman v. Cutaia, 951 A.2d 727 (Del. 2008) ...... 5, 6 First Midwest Bank, N.A. v. Sparks, 682 N.E. 2d 373 (Ill. App. Ct. 1997) ...... 17 G & S Holdings LLC v. Cont’l Cas. Co., 697 F.3d 534 (7th Cir. 2012) ...... 4 Gas Tech. Inst. v. Rehmat, 2006 WL 3743576 (N.D. Ill. Dec. 15, 2006)...... 11 Geinosky v. City of Chicago, 675 F.3d 743 (7th Cir. 2012) ...... 4 Go For It, Inc. v. Aircraft Sales Corp., 2003 WL 21504600 (N.D. Ill. June 27, 2003)...... 18 Gredell v. Wyeth Labs., Inc., 2005 WL 4774219 (Ill. App. Ct. June 10, 2005)...... 10, 12 Green v. Warden, U.S. Penitentiary, 699 F.2d 364 (7th Cir. 1983) ...... 4 Horne v. Flores, 557 U.S. 433 (2009)...... 3 In re Berkshire Realty Co., Inc., 2002 WL 31888345 (Del. Ch. Dec. 18, 2002)...... 5 In re First Interstate Bancorp Consol. S’holder Litig., 729 A.2d 851 (Del. Ch. 1998) ...... 6, 8
ii
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In re J.P. Morgan Chase & Co. S’Holder Litig., 906 A.2d 808 (Del. Ch. 2005) ...... 5 In re NYMEX S’holder Litig., 2009 WL 3206051 (Del. Ch. Sept. 30, 2009)...... 7 Joyce v. Morgan Stanley & Co., Inc., 538 F.3d 797 (7th Cir. 2008) ...... 10 Kaplan v. Peat, Marwick, Mitchell & Co., 540 A.2d 726 (Del. 1988) ...... 10 Khan v. Deutsche Bank AG, 978 N.E.2d 1020 (Ill. 2012)...... 10 Kramer v. W. Pac. Indus., Inc., 546 A.2d 348 (Del. 1988) ...... 5, 7, 8 Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135 (Del. 1997) ...... 17 Maldonado v. Flynn, 413 A.2d 1251, 1260 (1980)...... 8 Mehl v. Navistar Int’l Corp., 670 F. Supp. 239 (N.D. Ill. 1987)...... 18 Metro. Life Ins. Co. v. Tremont Group Holdings, Inc., 2012 WL 6632681 (Del. Ch. Dec. 20, 2012)...... 5, 8 Norman v. Brandt, 929 N.E.2d 14 (Ill. App. 2010)...... 19 Opoka v. I.N.S., 94 F.3d 392 (7th Cir. 1996) ...... 11 Parfi Holding AB v. Mirror Image Internet, Inc., 954 A.2d 911 (Del. Ch. 2008) ...... 9 PharMerica Chicago, Inc. v. Meisels, 772 F. Supp. 2d 938 (N.D. Ill. 2011)...... 8 Pirelli Armstrong Tire Corp. v. Walgreen Co., 631 F.3d 436 (7th Cir. 2011) ...... 4 Portnoy v. Kawecki Berylco Indus., Inc., 607 F.2d 765 (7th Cir. 1979) ...... 9 Prime Leasing v. Kendig, 773 N.E.2d 84 (Ill. 2002)...... 15
iii
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Rawoof v. Texor Petroleum Co., Inc., 521 F.3d 750 (7th Cir. 2008) ...... 5 RMB Fasteners, Ltd. v. Heads & Threads Int’l, LLC, 2012 WL 401490 N.D. Ill. Feb. 7, 2012)...... 5 Seidel v. Byron, 405 B.R. 277 (N.D. Ill. 2009) ...... 11 Sorrell v. IMS Health Inc., 131 S. Ct. 2653 (2011)...... 17 Stroud v. Grace, 606 A.2d 75 (Del. 1992) ...... 18 The Ravenswood Investment Company, L.P. v. Winmill, 2011 WL 2176478 (Del. Ch. May 31, 2011)...... 7 Thornwood, Inc. v. Jenner & Block, 344 Ill. App. 3d 15 (2003) ...... 18 Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) ...... 2, 5, 6, 7, 9 Trade Fin. Partners, LLC v. AAR Corp., 573 F.3d 401 (7th Cir. 2009) ...... 15 TRW Title Ins. Co. v. Sec. Union Title Ins. Co., 153 F.3d 822 (7th Cir. 1998) ...... 14 Umble v. Sandy McKie & Sons, Inc., 690 N.E.2d 157 (Ill. App. Ct. 1998) ...... 19 Vector-Springfield Props., Ltd. v. Central Ill. Light Co., Inc., 108 F.3d 806 (7th Cir. 1997) ...... 10, 12 VGS, Inc. v. Castiel, 2003 WL 723285 (Del. Ch. Feb. 23, 2003) ...... 5 Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012) ...... 14 Wilkinson v. Appleton, 190 N.E.2d 727 (Ill. 1963)...... 15, 16 Statutes 16 Am. Jur. 2d Conspiracy § 55 (2012)...... 17 740 Ill. Comp. Stat. 160/10...... 10, 19
iv
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Other Authorities Balotti & Finkelstein, The Delaware Law of Corporations and Business Organizations § 13.10 (2011) ...... 6 Illinois Jurisprudence, Personal Injury and Torts § 9.19 (2007)...... 18 Rest. (Second) of Torts § 876, Ills. 6 (1977) ...... 19 Rules Fed. R. Civ. P. 11...... 12 Fed. R. Civ. P. 12(b)(1)...... 3, 4, 8 Fed. R. Civ. P. 12(b)(6)...... 1, 3, 4 Fed. R. Civ. P. 23.1(b)(1)...... 9 Fed. R. Civ. P. 23.1(b)(3)...... 4, 9 Fed. R. Civ. P. 9(b) ...... 4, 15, 16
v
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I. INTRODUCTION AND BACKGROUND
This lawsuit arises from a June 2006 transaction between Defendant Panda Express
(“Panda”) and an entity known as PE Chicago. Compl. ¶ 1.1 PE Chicago was wholly owned
and controlled by Rezko Enterprises (“Enterprises”), a Delaware limited liability company that
in turn was controlled by its managing member, Tony Rezko. Id. ¶¶ 1, 11. In the transaction at
issue, PE Chicago sold its “only real asset” to Panda—a 50% interest in a partnership with Panda
known as “Rezko Citadel.” Id. ¶¶ 1, 76.
Plaintiff Fortunee Massuda at one point had an approximately 11% interest in Enterprises
by virtue of a subscription agreement she entered in late 1997 or early 1998. Id. ¶ 12. Her core
allegation is that “Defendants conspired with Tony Rezko to acquire PE Chicago’s entire interest
in the Rezko-Citadel partnership and at a price far less than the fair value of such interest, and to
funnel the proceeds of the transaction to Rezko personally, thereby depriving PE Chicago, and
those with interests in PE Chicago, of the money to which they were rightfully due.” Id. ¶ 1.
What Plaintiff fails to tell the Court, however, is that PE Chicago—the allegedly
“depriv[ed]” party to the transaction at issue—is one of the obliquely referenced “parties” that
“reached a settlement” with Defendants in a case brought years ago based on precisely the same
claims that Plaintiff belatedly brings here, represented by precisely the same lawyers. See id.
¶ 33; Ex. A [Settlement Agreement].2
Plaintiff’s attempt to bring these claims on her own behalf now fails as a matter of law, for at least three independent reasons. First, the Complaint is an improper derivative lawsuit,
1 Panda strongly disputes the allegations of the Complaint. For purposes of its Rule 12(b)(6) motion only, Panda takes the properly pleaded allegations of the Complaint as true. 2 The settlement is referenced in the Complaint and otherwise part of the record now. Infra Part II.A.2.
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because it does not allege a single injury to Plaintiff that is “independent of any injury to the
[company],”—i.e., PE Chicago and Enterprises. Tooley v. Donaldson, Lufkin & Jenrette, Inc.,
845 A.2d 1031, 1038 (Del. 2004) (emphasis added). To the contrary, Plaintiff’s Complaint makes clear at every turn that her claims derive wholly from injury supposedly suffered by PE
Chicago as a result of the sale of its asset, which Plaintiff claims harmed PE Chicago and thus
Enterprises and thus her. E.g., Compl. ¶¶ 1, 41, 44, 46, 53, 58, 79. Because Plaintiff cannot
prevail on her own claims without proving her allegation that the sale actually injured PE
Chicago and Enterprises, her claims are derivative even though they are “cloaked” as direct
claims for breaches of duties supposedly owed to her. Plaintiff cannot assert such claims
directly. And she cannot assert them derivatively because PE Chicago already has brought and
released them, and also because she cannot allege that she maintains her ownership interest today
or that she has attempted to cause the company to act on its own behalf, as derivative plaintiffs
must. Plaintiff is asking Panda to pay for the same alleged harm twice: once to PE Chicago
through the settlement of its direct lawsuit, and then again to a one-time investor in Enterprises
who claims an indirect harm. Such a lawsuit cannot stand, and the Court need go no further.
Second, Plaintiff’s claims are time-barred. Plaintiff had sufficient information about the
injuries she alleges—all of which derive from the June 1, 2006 sale—to reasonably have been
alerted to the need for further inquiry well before December 5, 2007 (five years before she filed
this Complaint). Based on her own allegations, Plaintiff should have discovered her supposed
injury before December 5, 2007, because she specifically alleges that even before the transaction,
(1) it was “widely known that Rezko was in severe financial distress and had extensive legal troubles”; and (2) she was already engaged in litigation with “Rezko, Enterprises, and other
business entities that he controlled for monies owed to her.” Compl. ¶¶ 22, 23. The statute of
2
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limitations, just like the derivative nature of her claims, are fatal to Plaintiff’s entire case.
Third, if the Court considers the merits of each specific claim (it need not), each fails on
its own terms. For example, Plaintiff has come nowhere close to pleading sufficient facts to
support her fraud claim, because she never alleges even in conclusory form that she actually
relied upon any misstatement by Defendants and identifies no actionable misstatement at all.
Similarly, her fraudulent transfer claims fail because she was not a creditor but rather an indirect
investor in the transferor. And her conspiracy and aiding-and-abetting claims fail because they depend on a failure to disclose the sale to her, which Panda had no duty to do and which caused her no harm in any event. For these and other reasons, Plaintiff’s claims should be dismissed.
II. ARGUMENT
Standing to sue is a threshold requirement in every federal action. Horne v. Flores, 557
U.S. 433, 445 (2009). When considering a Rule 12(b)(1) motion challenging the factual basis for subject matter jurisdiction, district courts look beyond the pleadings, “no presumptive truthfulness attaches to plaintiff’s allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims.”3 “[T]he party asserting a right to a federal forum has the burden of proof . . . .” Craig v. Ontario Corp.,
543 F.3d 872, 876 (7th Cir. 2008).
Moreover, a complaint must be dismissed under Rule 12(b)(6) unless it “contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
3 Hay v. Ind. State Bd. of Tax Comm’rs, 312 F.3d 876, 879 (7th Cir. 2002); Apex Digital Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009); Triumph Packaging Grp. v. Ward, 877 F. Supp. 2d 629, 638 (N.D. Ill. 2012) (“[T]he Court may look beyond the allegations to determine whether Ward has standing, and thus whether the Court has subject matter jurisdiction over his derivative claims.”).
3
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570 (2007)). A court should disregard “legal conclusions” or “[t]hreadbare recitals of the elements of a cause of action.” Id.4 A motion under Rule 12(b)(6) can be based on “documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice,” Geinosky v. City of Chicago, 675 F.3d 743,
745 (7th Cir. 2012), such as “matters of public record,” Anderson v. Simon, 217 F.3d 472, 474-
75 (7th Cir. 2000), including “notice of proceedings in other courts,” Green v. Warden, U.S.
Penitentiary, 699 F.2d 364, 369 (7th Cir. 1983).
A. Plaintiff Lacks Standing to Sue Because the Claims Are Derivative of Claims that PE Chicago Has Already Settled and Released.
All of Plaintiff’s claims should be dismissed because they derive entirely from alleged injuries to PE Chicago and its parent, Enterprises (the entity in which Plaintiff actually owned an interest), that allegedly caused Plaintiff only indirect harm. As explained below, under governing Delaware law: (i) such claims could only be litigated derivatively on behalf of the companies; (ii) PE Chicago already brought and settled its claims; and (iii) Plaintiff has not established the requisite current ownership interest in Enterprises or PE Chicago. Plaintiff thus lacks standing to bring such claims, and the claims should therefore be dismissed pursuant to
Rule 12(b)(1). E.g., G & S Holdings LLC v. Cont’l Cas. Co., 697 F.3d 534, 541-42 (7th Cir.
2012) (affirming dismissal pursuant to Rule 12(b)(1) where the alleged “injury to the plaintiffs stems from the injury to [company], and is derivative not direct]”). Alternatively, the claims should be dismissed pursuant to Rules 12(b)(6) and 23.1 because Plaintiff does not attempt to plead that it would be futile for her to demand that PE Chicago pursue claims on its own behalf.
4 And where, as here, a plaintiff alleges claims sounding in fraud, “the circumstances constituting fraud” must be pled “with particularity.” E.g., Pirelli Armstrong Tire Corp. v. Walgreen Co., 631 F.3d 436, 441 (7th Cir. 2011); Fed. R. Civ. P. 9(b). Particularity is also required for a derivative plaintiff’s allegations that she has demanded that the entity proceed on its own behalf. Fed. R. Civ. P. 23.1(b)(3).
4
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1. Plaintiff Cannot Bring the Claims on Her Own Behalf.
Under Delaware law, “[t]he stockholder’s claimed direct injury must be independent of any alleged injury to the corporation.” Tooley, 845 A.2d at 1039.5 “The stockholder must demonstrate that the duty breached was owed to the stockholder and that he or she can prevail without showing an injury to the corporation.” Id. (emphasis added). If the nature of the injury
“falls directly on the business entity as a whole and only secondarily on individual investors ‘as a function of and in proportion to [their] pro rata investment in the [entity],’ then the claim is derivative and must be prosecuted on behalf of the entity.” Metro. Life Ins. Co. v. Tremont
Group Holdings, Inc., 2012 WL 6632681, at *8 (Del. Ch. Dec. 20, 2012) (citation omitted).
Here, Plaintiff’s claims wholly depend on an injury to PE Chicago, and she cannot avoid the rules governing derivative litigation “by cloaking [her] derivative suit in direct suit clothing.”
In re Berkshire Realty Co., Inc., 2002 WL 31888345, at *3 (Del. Ch. Dec. 18, 2002). “[U]nder
Tooley, the duty of the court is to look at the nature of the wrong alleged, not merely at the form of words used in the complaint.” In re J.P. Morgan Chase & Co. S’Holder Litig., 906 A.2d 808,
817 (Del. Ch. 2005); accord Kramer v. W. Pac. Indus., Inc., 546 A.2d 348, 352 (Del. 1988). The emphasis is on the “type of harm” alleged, and “creative attempt[s] to recast . . . derivative claims” as direct are “disfavored.” Feldman v. Cutaia, 951 A.2d 727, 733 (Del. 2008). “The
5 “Although federal law generally controls the question of standing, whether the shareholder’s claims are derivative or direct for purposes of the shareholder standing rule is controlled by the law of the state of incorporation”—in this case Delaware, where Enterprises was formed. Rawoof v. Texor Petroleum Co., Inc., 521 F.3d 750, 762 (7th Cir. 2008); see also RMB Fasteners, Ltd. v. Heads & Threads Int’l, LLC, 2012 WL 401490, at *14 (N.D. Ill. Feb. 7, 2012) (“Plaintiff lacks standing under Delaware law to bring this direct claim[.]”). The same rules apply where, as here, the entity at issue is not a corporation but a limited liability company. The “derivative suit is a corporate concept grafted onto the limited liability company form,” Elf Atochem N. Am. v. Jaffari, 727 A.2d 286, 293-94 & n.40 (Del. 1999), and “case law governing corporate derivative suits is equally applicable to suits on behalf of an L.L.C.” VGS, Inc. v. Castiel, 2003 WL 723285, at *11 (Del. Ch. Feb. 23, 2003).
5
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mere fact that the alleged harm is ultimately suffered by . . . stockholders does not make a claim
direct under Tooley.” Id.
Although they are not labeled as such, Plaintiff’s claims are “derivative’ because they are
“essentially for” aiding and abetting Rezko’s corporate waste or “mismanagement of corporate
assets.” Tooley, 845 A.2d at 1038; see also In re First Interstate Bancorp Consol. S’holder
Litig., 729 A.2d 851, 864 (Del. Ch. 1998) (where “the claims of primary liability . . . belong to
the corporation and could only be maintained in a derivative capacity, that finding logically
applies with equal force to the alleged claims of secondary liability” against a third party).6
Plaintiff’s core theory is that PE Chicago (a subsidiary of the company she actually invested in) lost the benefit of its “only real asset” (the partnership interest) because of Defendants’ and
Rezko’s allegedly wrongful conduct, and that the repercussions reverberated up the chain, causing lost profits and proceeds to PE Chicago, and thus to Enterprises, and thus to Plaintiff.
E.g., Compl. ¶ 46 (“Defendants intentionally defrauded Dr. Massuda, PE Chicago and
Enterprises out of the fair market value of PE Chicago’s 50% interest in the Rezko-Citadel partnership.”); id. ¶ 58 (“Defendants and Tony Rezko . . . caused PE Chicago to transfer its 50% interest in the Rezko-Citadel partnership to Panda Express at a price that was well below fair value, to the detriment of PE Chicago and Enterprises and those who have interests in PE
Chicago and Enterprises.”); id. ¶ 79 (“PE Chicago did not receive a reasonably equivalent value
. . . in exchange for the transfer of its partnership interest to Panda Express.”). Plaintiff’s entire
Complaint is derivative because it does not allege even a single injury “independent” of alleged
6 See also, e.g., Avacus Partners, L.P. v. Brian, 1990 WL 161909, at *7 (Del. Ch. Oct. 24, 1990) (“Claims of waste will always be derivative claims . . . .”); Balotti & Finkelstein, The Delaware Law of Corporations and Business Organizations § 13.10 (2011) (“A claim that seeks relief for alleged breaches of fiduciary duty which caused injury to the corporation and its stockholders as a whole remains derivative, as does a claim that a particular transaction constitutes a waste of corporate assets.”).
6
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harm to PE Chicago resulting from the supposedly below-market sale and alleged “diversion of
funds” from the “sale proceeds” to Rezko. Kramer, 546 A.2d at 353-54 & n.7. To the contrary, every single cause of action is expressly predicated on the loss of “PE Chicago’s 50% interest in
Rezko-Citadel.” E.g., Compl. ¶¶ 39, 41, 44 (Count I) (emphasis added); accord, e.g., id. ¶ 46
(Count II); id. ¶ 58 (Count III); id. ¶ 66 (Count IV); id. ¶ 71 (Count V); id. ¶ 87 (Count VI).
The Delaware Court of Chancery recently addressed similar claims in The Ravenswood
Investment Company, L.P. v. Winmill, 2011 WL 2176478 (Del. Ch. May 31, 2011). Ravenswood
illustrates that merely pleading a claim for “breach[] [of] fiduciary dut[y]” that was owed to the
shareholder does not satisfy Tooley’s conjunctive requirement that a shareholder bringing a
direct claim can also “prevail without showing an injury to the corporation” such that the claim is
“independent of any alleged injury to the corporation.” Id. at *2; Tooley, 845 A.2d at 1036, 1038
(emphases added). In Ravenswood, the plaintiff brought purportedly direct claims alleging that
the managers of a holding company had “breached their fiduciary duties” to shareholders by
causing the company to sell its “50% interest” in a subsidiary, through a transaction that allowed
the managers to “improperly receive compensation . . . that should have instead gone to the
[company’s] shareholders.” 2011 WL 2176478, at *2, *6. The court readily concluded that the
claims “involve injuries to the Company as a whole, and not to individual shareholders of the
Company.” Id. The court therefore “dismisse[d] the direct claims” and held the suit was solely
derivative. Id.
Similarly, in Kramer, the Delaware Supreme Court held that the claims were derivative
where the Delaware shareholder alleged waste of corporate assets and that the directors had
diverted funds to themselves and to third parties. 546 A.2d at 353-54 & n.7; see also, e.g., In re
NYMEX S’holder Litig., 2009 WL 3206051, at *9 (Del. Ch. Sept. 30, 2009) (“A breach of
7
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fiduciary duty” claim alleging that the company was “precluded from . . . maximiz[ing] the
return on its assets” is treated as derivative because “the company suffers the harm”).7 Plaintiff’s
purportedly direct claims thus should be dismissed under Rule 12(b)(1) because Plaintiff cannot
bring them on her own behalf. E.g., G & S Holdings LLC, 697 F.3d at 541-42.
2. Plaintiff Cannot Bring the Claims Derivatively.
Plaintiff also cannot bring the claims derivatively—for three reasons. First, the claims
have already been brought, settled, and released by PE Chicago itself. By bringing those claims
derivatively here, Plaintiff is thus improperly “seek[ing] to assert a right not legally assertable by
[the company],” so her claims fail for lack of redressability and are moot. E.g., Maldonado v.
Flynn, 413 A.2d 1251, 1260 (1980), rev’d on other grounds, 430 A.2d 779 (Del. 1981).8
Plaintiff expressly refers to both the lawsuit and the settlement in her Complaint (¶¶ 32-33), but neglects to mention that PE Chicago was a plaintiff in that suit and released all of its claims arising from the sale of the Partnership Interest. As demonstrated by Section 4.1 of the settlement agreement, which is being filed under seal and which the Court may consider because it is referenced in the Complaint and under Rule 12(b)(1), PE Chicago released the very claims that Plaintiff purports to bring here. See, e.g., PharMerica Chi., Inc. v. Meisels, 772 F. Supp. 2d
7 Plaintiff has not alleged that she “los[t] share membership through misrepresentation, conspiracy, fraud, or breach of fiduciary duty.” Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1188 (Del. 1988) (emphasis added). Such former shareholders can bring direct actions, as “[n]o one would assert that a former owner suing for loss of property through deception or fraud has lost standing to right the wrong.” Id.; see also Kramer, 546 A.2d at 354 (characterizing Cede as involving “direct attacks on transactions involving corporate restructuring” that cashed out the complaining shareholders). Here, the claim is that Defendants “deplete[d] or destroy[ed] corporate assets and reduced the value of” the LLC’s membership interests)—a derivative claim. Cede, 542 A.2d at 1088 n.10. 8 See also Metro. Life Ins., 2012 WL 6632681, at *9–13 (classifying purportedly direct claims as derivative and dismissing because company had settled them); First Interstate Bancorp, 729 A.2d at 865 n.11 (dismissing derivative action where “any potential claim” by the company “was released in the Settlement Agreement”); Allied Artists Pictures Corp. v. Barron, 413 A.2d 876, 880 (Del. 1980) (“[A]ction that cures the alleged wrong to the corporation[] . . . moots or settles the [derivative] lawsuit”).
8
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938, 946 (N.D. Ill. 2011) (“the Settlement Agreement is considered part of the pleadings” if relied on in a complaint) (citing cases).
Second, Plaintiff’s derivative claims fail for the independent reason that she has not made the requisite allegation—required as a matter of both Delaware substantive and federal procedural law—that she currently “retain[s] ownership” of her interest in Enterprises. E.g.,
Portnoy v. Kawecki Berylco Indus., Inc., 607 F.2d 765, 767 (7th Cir. 1979); Fed. R. Civ. P.
23.1(b)(1); Tooley, 845 A.2d at 1036; Parfi Holding AB v. Mirror Image Internet, Inc., 954 A.2d
911, 935 (Del. Ch. 2008). Plaintiff artfully claims that she acquired her “ownership interest” through a subscription agreement she entered in 1997 or 1998—but she stops notably short of
claiming that she maintains that ownership interest now, and she concedes that she attempted to
sell her interests as far back as 2006. Compl. ¶¶ 12, 23. The reason that Plaintiff does not allege current ownership is simple—she cannot truthfully do so. In fact, in the first lawsuit brought by
Plaintiff’s lawyers, Dr. Massuda’s husband admitted that she no longer owned her interest:
Q: Now, is Mr. — Dr. Massuda is an owner, still an owner, of Enterprises?
THE COURT: You mean Rezko Enterprises?
BY MR. MARCONI: Rezko Enterprises?
A: Not that we know of, sir.
Ex. B [Sirazi v. Panda Exp., Inc., No. 08-cv-02345, Tr. at 179:19-25]. Because Dr. Massuda does not and clearly cannot allege a current ownership, direct or indirect, in PE Chicago, she cannot bring the derivative claims that she seeks to bring here.
Third, Plaintiff’s derivative claims fail because she has not alleged (let alone with particularity) that she made a demand on PE Chicago or Enterprises to sue for themselves, or that such demand would be futile. E.g., Braddock v. Zimmerman, 906 A.2d 776, 784 (Del. 2006);
9
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Fed. R. Civ. P. 23.1(b)(3). “The purpose of pre-suit demand is to assure that the stockholder
affords the corporation the opportunity to address an alleged wrong without litigation and to
control any litigation which does occur.” Kaplan v. Peat, Marwick, Mitchell & Co., 540 A.2d
726, 730 (Del. 1988). Even if PE Chicago had not already “addressed [the] alleged wrong” for
itself, Plaintiff would need to give it fair opportunity to do so.
B. The Claims are Time-Barred.
1. The Limitations Periods Have Expired.
Plaintiff’s claims are also time barred. Plaintiff alleges that the wrongful sale of PE
Chicago’s interest in the Rezko-Citadel Partnership to Panda, out of which each of her claims
arises, occurred on June 1, 2006, more than six years before she brought the current lawsuit. She
also alleges that by late 2005 it was “widely reported . . . [and] widely known that Rezko was in
severe financial distress and had extensive legal troubles,” and that by April 2006 she was
pursuing litigation against “Rezko, Enterprises, and other business entities that he controlled for
monies owed to her.” Compl. ¶¶ 22, 23 (emphasis added). Based on these allegations alone,
Plaintiff cannot carry her burden to “allege facts” establishing delayed discovery, because she
had more than sufficient information (i) “to put a reasonable person on inquiry to determine whether actionable conduct was involved” by December 5, 2007, five years before Plaintiff filed
her Complaint for Counts I through VI, and (ii) to alert a reasonable person to “the transfer” far
outside the one-year period for Counts V and VI.9 See Gredell v. Wyeth Labs., Inc., 2005 WL
9 Vector-Springfield Props., Ltd. v. Central Ill. Light Co., Inc., 108 F.3d 806, 809 (7th Cir. 1997); see also Burns Philp Food, Inc. v. Cavalea Cont’l Freight, Inc., 135 F.3d 526, 528 (7th Cir. 1998) (unjust enrichment); Joyce v. Morgan Stanley & Co., Inc., 538 F.3d 797, 803 (7th Cir. 2008) (fraud); Khan v. Deutsche Bank AG, 978 N.E.2d 1020, 1028-29 (Ill. 2012) (civil conspiracy); Clark v. Robert W. Baird Co., 142 F. Supp. 2d 1065, 1074-75 (N.D. Ill. 2001) (breach of fiduciary duty); 740 Ill. Comp. Stat. 160/10(a) (“UFTA”).
10
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4774219, at *36 (Ill. App. Ct. June 10, 2005) (information “readily available with a modicum of
inquiry” started the statute of limitations).
As Plaintiff alleges, she was investigating her injury in connection with her ownership
interest in Enterprises at the time of the transaction and had even brought claims against Rezko.
By “April of 2006”—months before the sale at issue here—Plaintiff concedes that she had been
suing Rezko “for monies owed to her” in connection with Enterprises. Id. ¶ 23. Plaintiff
pursued that case during the entire period from June 1, 2006 through December 5, 2007. See Ex.
C [Massuda v. Rezko, Case No. 06 L 3510 (Cir. Ct. Cook Co.)].10 It is thus undisputed on the
face of Plaintiff’s Complaint and materials referenced therein that, when the transfer was made
on June 1, 2006, Plaintiff already was aware of Rezko’s financial troubles, was owed money by
Rezko in connection with her interest in Enterprises, and was actively pursuing a case against him to recover that money.
Other judicially noticeable materials further confirm that Plaintiff’s claims are time- barred. For example, as a result of her ownership interest in Enterprises, Plaintiff was owed: (1) distributions of any cash flow “no later than March 31 following the end of each fiscal year”; and
(2) “financial statements of [Enterprises] for the fiscal year ended (including a balance sheet and statement of income)” within ninety days after the close of each fiscal year. Ex. D [Enterprises
LLC Agreement], at 7, 13.11 She was also entitled to “inspect, extract, and copy” Enterprises’
books and records. Id. at 13. Whether Plaintiff did or did not receive the information that
10 It is well-settled that the docket sheets are subject to judicial notice at the pleading stage where, as here, “the proceedings have a direct relation to the matters at issue.” E.g., Opoka v. I.N.S., 94 F.3d 392, 394 (7th Cir. 1996) (internal citations omitted); Anderson, 217 F.3d at 474-75; Green, 699 F.2d at 369. 11 The “LLC agreement” is subject to “judicial notice,” is “central to the Plaintiff[’s] claims,” and should be considered “in deciding the motion to dismiss.” E.g., Seidel v. Byron, 405 B.R. 277, 284-85 (N.D. Ill. 2009) (considering certificate of incorporation); Gas Tech. Inst. v. Rehmat, 2006 WL 3743576, at *17 (N.D. Ill. Dec. 15, 2006) (considering LLC agreement).
11
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Enterprises was required to provide, either occurrence should have alerted her to the possibility,
as she alleges, that Rezko had looted the proceeds from the sale of “the only real asset held by
PE Chicago,” which Enterprises “wholly owned and managed.” Compl. ¶¶ 1, 11, 76.
Further, Plaintiff has not carried her “burden . . . to show that the [discovery] rule
applies” by alleging that she, in fact, did not discover the June 1, 2006 transaction. See Gredell,
2005 WL 4774219, at *12. Again, Plaintiff does not allege these facts because she cannot. In
the prior case brought by the same lawyers, Plaintiff testified under oath that she found out about
the sale in the “summer of 2006.” Ex. E [Massuda Depo. at 30:22-24]. Thus Plaintiff clearly could not cure her deficient pleadings consistent with Rule 11, and her claims should be dismissed with prejudice.
Counts I through IV are therefore time-barred because a reasonably diligent person should have been “on inquiry to determine whether actionable conduct was involved” in the transfer long before December 5, 2007. Vector-Springfield Props., 108 F.3d at 809; Joyce, 538
F.3d at 803 (upon experiencing a financial loss, plaintiffs were “put on notice of the need to investigate”). Counts V and VI are even more clearly barred, because Plaintiff should have discovered “the transfer” more than a year before filing this suit (before December 5, 2011).12
2. The Limitations Periods Have Not Been Tolled.
Plaintiff alleges that her claims were tolled because Defendants supposedly fraudulently
12 These conclusions are bolstered by the fact that Sirazi had discovered sufficient facts to initiate his lawsuit by April 24, 2008, when he (with the same attorneys) filed a complaint alleging all of the causes of action that are in Plaintiff’s Complaint and virtually identical facts based on the same June 1, 2006 transaction. Ex. F [Sirazi v. Panda Exp., Inc., No. 08-cv-2345 (Dkt. No. 1)]. Sirazi even alleged that “[i]n or around March or April of 2006, . . . Massuda contacted Panda Express and informed Panda Express that she was suing Tony Rezko and the business entities that he controlled for monies owed to her.” Id. ¶ 25. Of course, Sirazi could only have known this by asking Massuda—yet another fact establishing reasonable notice that should have prompted Massuda to investigate her potential claims.
12
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concealed the June 1, 2006 sale from her. Compl. ¶¶ 34-37. But this theory fails because she
has not come close to alleging that (1) Defendants committed “affirmative acts . . . designed to
prevent the discovery” of the transaction from her; or that (2) those acts, in fact, reasonably
concealed the transaction from her. Clay v. Kuhl, 727 N.E.2d 217, 223 (Ill. 2000).
As discussed above, Plaintiff alleges no facts sufficient to show that a reasonable person
would not have discovered the sale at a point when reasonable time remained within the normal
limitations period. Tolling by fraudulent concealment therefore cannot have occurred. Barratt,
694 N.E.2d at 609. Further, Plaintiff does not allege any affirmative acts that purportedly concealed the transaction from her to prevent her from discovering her claims. She states only the legal conclusions that “Defendants affirmatively concealed from . . . Massuda the wrongful actions described in this Complaint” and that “Defendants had a duty to inform Plaintiff” of the
June 1, 2006 transaction but did not. Compl. ¶¶ 34, 35. Mere “legal conclusions” are insufficient to plead fraudulent concealment. Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). And to the extent that Plaintiff alleges any affirmative acts of concealment at all (she does not), she certainly points to none that were specifically designed to prevent her from discovering her claims apart from the conduct underlying her substantive claims. But “[m]ere silence on the part of the defendant and failure by the claimant to learn of the cause of action are not enough.” Barratt v. Goldberg, 694 N.E.2d 604, 608 (Ill. App. Ct. 1998). If the alleged concealment for statute of limitations purposes consists of the same “allegedly fraudulent statements or omissions that form the basis of the cause of action”—rather than a separate act of concealment that specifically “tend[] to conceal the cause of action”—no tolling occurs.13 Thus
13 In addition, there could be no concealment because Defendants had no duty to tell Massuda about the sale. Because Panda and Massuda had no relationship at all, and “courts in Illinois have rarely found
[Footnote continued on next page]
13
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there was no tolling, and each of the claims is time-barred.
C. Each of the Causes of Action Fails to State a Claim.
1. Plaintiff Has Failed to State a Claim for Unjust Enrichment.
Plaintiff’s claim for unjust enrichment also fails because it is merely duplicative of plaintiffs’ other claims. “[I]f an unjust enrichment claim rests on the same improper conduct
alleged in another claim, then . . . unjust enrichment will stand or fall with the related claim.”
Cleary v. Philip Morris Inc., 656 F.3d 511, 517 (7th Cir. 2011). And where, as here, a plaintiff
predicates an unjust enrichment claim on “the same allegations of fraudulent conduct that
[would] support an independent claim of fraud, resolution of the fraud claim against the plaintiff
is dispositive of the unjust enrichment claim as well.” Ass’n Benefit Servs., Inc. v. Caremark RX,
Inc., 493 F.3d 841, 855 (7th Cir. 2007).
Here, Plaintiff’s unjust enrichment claim is entirely duplicative of her other claims, and
because she fails to state a claim for fraud, she likewise fails to state a claim for unjust
enrichment. In any event, “[a]n unjust enrichment claim or other equitable relief is denied to a
plaintiff whose recklessness caused his claimed injury . . . . To allow an unjust enrichment claim
in these circumstances would be to convert this equitable action into an insurance policy for
those who gamble by avoiding safeguards they know they should take.” TRW Title Ins. Co. v.
Sec. Union Title Ins. Co., 153 F.3d 822, 829 (7th Cir. 1998). As a longtime investor in Rezko’s
[Footnote continued from previous page] a special trust relationship to exist in the absence of a more formal fiduciary one,” there can be no duty to disclose. Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 571-72 (7th Cir. 2012) (compiling cases). Nor did Panda acquire any fiduciary or other special relationship with Massuda (whether on the basis of an alleged phone call that Massuda made to Panda or for any other reason) that would require it to notify her of the transaction by conducting “a normal, commercial transaction . . . at arm’s length” with an entity— PE Chicago—in which Massuda was a minority shareholder. See, e.g., B A Mortg. & Int’l Realty Corp. v. Taylor, 1985 WL 1703, at *4 (N.D. Ill. June 7, 1985).
14
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ventures, Massuda was well aware of the risks of dealing with Rezko. See Compl. ¶¶ 12, 22-23.
2. Plaintiff Has Failed to Adequately Plead a Claim for Fraud.
Massuda’s fraud claim comes nowhere close to satisfying the rigorous requirements of
Federal Rule of Civil Procedure 9(b), which requires that a plaintiff “state with particularity the
circumstances constituting fraud.” Under Rule 9(b)’s heightened pleading standard, factual
allegations must include “the who, what, when, where, and how” of the alleged fraud. Borsellino
v. Goldman Sachs Group, Inc., 477 F.3d 502, 507 (7th Cir. 2007). And under Illinois law, “[a] plaintiff alleging fraud must prove by clear and convincing evidence that (1) the defendant made a false statement of material fact; (2) the defendant knew that the statement was false; (3) the defendant intended that the statement induce plaintiff to act; (4) the plaintiff justifiably relied upon the statement’s truth; and (5) the plaintiff suffered damages as a result of relying on the statement.” Trade Fin. Partners, LLC v. AAR Corp., 573 F.3d 401, 413 (7th Cir. 2009).
Here, Plaintiff has failed to this heightened pleading standard with respect to any element
of a fraud claim. Plaintiff bases her fraud claim on two allegedly false statements purportedly
made by Panda (though not the other Defendants, which is enough by itself to defeat the fraud
claim against them). She claims that it was false for Panda to say: (1) “that the purchase price it
offered for PE Chicago’s 50% interest in Rezko-Citadel represented a fair value”; and (2) that
“her interest in Enterprises and PE Chicago was ‘worthless,’ when Defendants instead paid millions to Rezko personally for his supposed interest in said companies.” Compl. ¶ 49. Yet no particularized facts indicate that these purported statements were actionably false. “Ordinarily erroneous statements as to matters of opinion,” such as a seller’s “representations of the value of property, do not amount to fraud.” Wilkinson v. Appleton, 190 N.E.2d 727, 730 (Ill. 1963);
Prime Leasing v. Kendig, 773 N.E.2d 84, 92-93 (Ill. 2002). A false statement regarding value may support a fraud claim only when it “relates to some specific extrinsic fact materially
15
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affecting value, and where the fact is one peculiarly within the knowledge of the speaker.”
Wilkinson, 190 N.E.2d at 730. Here, Plaintiff has alleged only that Panda misrepresented its opinion that the purchase price represented fair value and that Massuda’s shares were
“worthless,” which was subjectively true from Panda’s perspective. Plaintiff has not alleged that
Panda misrepresented a fact materially affecting the value of PE Chicago’s or Massuda’s interest that was uniquely within its control. Fed. R. Civ. P. 9(b).
Furthermore, Plaintiff does not and cannot allege that she reasonably relied upon these statements, or that she suffered damages as a result of relying on them. Rather, she alleges that by making these statements, “Defendants intended to cause PE Chicago, through its agent Tony
Rezko . . . to transfer its 50% interest in Rezko-Citadel to Panda Express for a price that was well below fair value.” Compl. ¶ 53 (emphasis added). The first purported statement was not even made to Massuda; it was allegedly made only to PE Chicago, and Plaintiff does not even attempt to allege that she relied on it. Meanwhile, the second statement bears no relationship at all to the damages Plaintiff purportedly suffered as a result of the supposed fraud. Therefore, even if
Plaintiff did rely on a statement that her interest in Enterprises was “worthless,” she has alleged no damages as a result of that purported statement.
Finally, Plaintiff claims she is a fraud victim because Panda did not inform her of the sale of PE Chicago’s partnership interest to Panda. Compl. ¶ 50. But this omission theory fails because Plaintiff has pleaded no facts to support her legal conclusion that Panda had a duty to inform Plaintiff of the June 1, 2006 sale of PE Chicago’s partnership interest, Connick v. Suzuki
Motor Co., 675 N.E.2d 584, 593 (Ill. 1996), and Panda in fact had no such duty, supra n.13.
3. Plaintiff Fails to Plead Facts Showing that Defendants Conspired to Defraud Her.
Plaintiff also fails to plead facts plausibly showing that any of the Defendants somehow
16
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conspired with Rezko to defraud her. Under Illinois law, “[a] cause of action for civil conspiracy
exists only if one of the parties to the agreement commits some act in furtherance of the
agreement, which is itself a tort . . . .” Adcock v. Brakegate, Ltd., 645 N.E.2d 888, 894 (Ill.
1994). “Thus, the gist of a conspiracy claim is not the agreement itself, but the tortious acts
performed in furtherance of the agreement.” Id. But “[t]ort liability arising from conspiracy
presupposes that the coconspirator is legally capable of committing a tort in that he or she owes a
duty recognized by law to the plaintiff and is potentially subject to liability for breach of that
duty.” 16 Am. Jur. 2d Conspiracy § 55 (2012) (emphasis added).
Here, again, Plaintiff has pleaded no facts showing that either Panda or the Cherngs owed
her a duty to disclose. Supra n.13. And because “[n]o independent duty is imposed” on Panda or the Cherngs “to disclose,” “no conspiracy can be stated” against them for failure to disclose
the fact that Panda purchased PE Chicago’s interest in the Rezko-Citadel partnership. Doe v.
Noe, 293 Ill. App. 3d 1099, 1114 (Ill. App. Ct. 1997), vacated on other grounds, 303 Ill. App. 3d
139 (Ill. 1998). To impose liability on Panda for failure to speak where it had no duty to speak would raise serious First Amendment concerns. Sorrell v. IMS Health Inc., 131 S. Ct. 2653,
2659 (2011); Wooley v. Maynard, 430 U.S. 705, 714 (1977).
Nor has Plaintiff pleaded an underlying tort at all, because she pleads no facts to show that she was in a “special or fiduciary relationship” with Rezko that “would raise a duty to speak” about the sale of the partnership interest, which is a prerequisite for fraudulent concealment.
E.g., First Midwest Bank, N.A. v. Sparks, 682 N.E. 2d 373, 379 (Ill. App. Ct. 1997). Under governing Delaware law, an affirmative duty to disclose to shareholders generally is triggered only in select situations—e.g., when directors are seeking shareholders’ action or approval.
Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 137 (Del. 1997); Stroud v. Grace, 606
17
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A.2d 75, 84 (Del. 1992).14 Plaintiff was at most a minority shareholder of Rezko Enterprises
LLC at the time of the sale of PE Chicago’s interest in Rezko-Citadel, so Rezko owed her no duty of disclosure. And the lack of an underlying “fraudulent concealment” by Rezko means that Panda and the Cherngs cannot be liable for “conspiring” with Rezko to fraudulently conceal.
E.g., Go For It, Inc. v. Aircraft Sales Corp., 2003 WL 21504600, at *3 (N.D. Ill. June 27, 2003).
At a minimum, Plaintiff has not pleaded any facts sufficient to show that the Cherngs personally entered a conspiracy. An officer or director who enters into a contract on behalf of a corporation has not personally entered an agreement with the counter-party. Carollo v. Irwin,
959 N.E.2d 77, 92 (Ill. App. Ct. 2011). It follows that, as here, “corporate directors can never be personally liable for damages stemming from an unlawful conspiracy between the corporation and independent third parties where the corporate directors were acting solely on behalf of the corporation . . . .” Illinois Jurisprudence, Personal Injury and Torts § 9.19 (2007); Mehl v.
Navistar Int’l Corp., 670 F. Supp. 239, 241 (N.D. Ill. 1987). Plaintiff’s conspiracy claim
therefore fails as to the Cherngs individually.
4. Plaintiff Has Not Pleaded Facts Sufficient to Show that Defendants Aided or Abetted a Breach of Fiduciary Duty.
Plaintiff also fails to plead facts to support her claim that Defendants aided and abetted a
breach of fiduciary duty. An alleged aider and abettor is liable only if he “knows that the other’s
conduct constitutes a breach of duty and gives substantial assistance or encouragement to the
other so to conduct himself[.]” Thornwood, Inc. v. Jenner & Block, 344 Ill. App. 3d 15, 27–28
(2003) (emphasis added). Plaintiff’s claims cannot satisfy either element of that test.
14 See also Blanchard v. EdgeMark Fin. Corp., 2001 WL 587861, at *4 (N.D. Ill. Mar. 12, 2001) (absent some other relationship, “a corporation and its shareholders do not have the kind of fiduciary relationship which requires total disclosure”).
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First, while Plaintiff asserts that “Defendants were aware, or should have been aware, of
Tony Rezko’s fiduciary duties and obligations to shareholders and creditors of PE Chicago and
Enterprises” Compl. ¶ 67, she pleads no facts to support that legal conclusion. Twombly, 550
U.S. at 570. Again, Plaintiff pleads no facts to show that Rezko owed her a duty to speak,
whatever duties he may have owed generally. And Plaintiff pleads no facts to show that Panda
or the Cherngs knew of any alleged undervaluing of the partnership. Merely “reduc[ing] the sale price through arm’s-length negotiations cannot give rise to liability for aiding and abetting.”
CDX Liquidating Trust v. Venrock Assocs., 640 F.3d 209, 220 (7th Cir. 2011).
Second, Plaintiff has not pleaded—and cannot plead—facts sufficient to show that Panda or the Cherngs “substantially assisted” any potential breach of fiduciary duty by Rezko. Illinois courts “do not equate failing to prevent certain conduct with actively encouraging that conduct,”
and refuse to find substantial assistance in such circumstances. Umble v. Sandy McKie & Sons,
Inc., 690 N.E.2d 157, 159 (Ill. App. Ct. 1998). Because any alleged assistance here did not
proximately enable the underlying breach, it is “insufficient to be considered ‘substantial
assistance’” to whatever torts Rezko may have committed. Norman v. Brandt, 929 N.E.2d 14,
20-21 (Ill. App. Ct. 2010) (citing Rest. (Second) of Torts § 876, Ills. 6, 11, at 318 (1977)). It
simply is not plausible that Panda or the Cherngs had any impact on Rezko’s non-disclosure of
the sale. Their remaining silent did not substantially assist Rezko in being silent himself, nor
does Plaintiff allege that her minority interest in Enterprises meant that she could have somehow
accessed the sale proceeds of PE Chicago had the transaction simply been disclosed.
5. Plaintiff Is Not a Creditor Under the UFTA as a Matter of Law.
Finally, Massuda has failed to state claims of actual and constructive fraud under the
Illinois Uniform Fraudulent Transfer Act because she is not a “creditor” for purposes of the
statute. 740 Ill. Comp. Stat. 160/2(c), (d), (i). In her complaint, Massuda characterizes the only
19
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interest she ever had in Enterprises and/or PE Chicago to arise as “the result of her subscription agreement, whereby she invested $4,000,000 in Enterprises to become a 10.67% owner of that company in late 1997/early 1998.” Compl. ¶ 12 (emphasis added). She then makes the legal allegation that she qualifies as a “creditor” pursuant to the UFTA, but she asserts no facts at all in support of this allegation. As a shareholder, if she was unhappy with a transaction entered into by PE Chicago, her remedy was to bring a proper shareholder derivative suit against PE Chicago
(which she has not done).15
III. CONCLUSION
Accordingly, each of Plaintiff’s claims should be dismissed with prejudice.
Respectfully submitted, PANDA EXPRESS, INC., PANDA RESTAURANT GROUP, INC., CITADEL PANDA EXPRESS, INC., ANDREW CHERNG, and PEGGY CHERNG
Dated: February 1, 2013 By:___/s/ Christopher D. Dusseault______One of Their Attorneys
Michael Dockterman (IL Bar No. 3121675) Christopher D. Dusseault* William R. Lee (IL Bar No. 6280450) Theane Evangelis Kapur* Tanya H. Miari (IL Bar No. 6290224) GIBSON, DUNN & CRUTCHER LLP EDWARDS WILDMAN PALMER LLP 333 South Grand Avenue 225 West Wacker Drive, Suite 3000 Los Angeles, California 90071 Chicago, Illinois 60606 (213) 229-7000 (312) 201-2000 [email protected] * Admitted pro hac vice
15 Nor could she assert that she became a “tort creditor” entitled to sue under the UFTA because the value of her equity interest was impaired by the June 1, 2006 sale. An impairment in the value of an investor’s equity interest in an entity is not the sort of injury the UFTA is intended to remedy. If the rule were otherwise, it would obliterate rule that shareholders lack standing to pursue corporate claims for themselves. E.g., Small v. Sussman, 713 N.E.2d 1216, 1219 (Ill. App. Ct. 1999); supra Part II.A.
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CERTIFICATE OF SERVICE
The undersigned, an attorney, hereby certifies that on February 1, 2013, a true and correct copy of the foregoing Memorandum In Support of Defendants’ Motion to Dismiss, with Exhibits A-F, Dusseault Declaration, and Appendix of Unreported Cases was filed with the Clerk of the Court for the United States District Court, Northern District of Illinois, using the CM/ECF system, which will send notification of such filing to the all parties of record, and was caused to be served via first class mail upon the following:
Robert S. Grabemann Timothy M. Schaum Vincent V. Frigo Daspin & Aument 227 West Monroe St. Suite 3500 Chicago, IL 60601
______/s/ Tanya H. Miari_____
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EXHIBIT D
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.j , ,
'·1 · I I • J
, . · \
AMENDED AND RESTATED OPERATlNG AGREEMENT
: , : i FOR
REZKO ENTERPRISES; L.L.C .
. .i
! 1 i ·, .t , · .~ · f i I .' .. : r " i . \. J .
; j
..- 1 : 1 ;.. ; S-3861
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'J , J AMENDED AND RESTATED OPERATING AGREEMENT FOR REZKO : i ENTERPRISES. L.L.C. i Table of Contents : I <. i 1. ORGANIZATION ...... 2 . i 1.01· Continuation of Limited Liability Company ...... 2 i 1.02 Name ...... 2 ~. j 1.03 PrinCipal Office, Registered Office And Registered Agent ...... ~ ...... ; ...... 2 1.04 Purpose ...... ; ...... ·...... 2 1.05 Fiscal Year ...... '.' ...... 2 , '. , 1.06 Term ...... : ...... :.: ..... ·; .. : ...... 2
n. GOORAL·DEFOOfIONS ...... : ...... : ...... 2 2.01 Act- ...... :...... 3 2.02 Affiliate ofa Member ...... :...... 3 2.03 Agreement ...... '" ...... 3 . 2.04 Bankrupl ... ; ...... : ...... ; ...... 3 2.05 Bankruptcy Code ...... :...... : ...... , ...... 3 2.06 Cash Flow ...... : ...... 3 2.07 Code ...... ' ...... 3 2.08 Company ...... :...... , ...... 3 2.09 Manager ...... :...... : ...... 4 2.'10 Members ...... '4 2.11 Membership Interest ...... : ...... , ...... : ...... 4 2.12 MemorandUIn ...... ' ...... , ...... , ...... , ...... 4 2.13 Property ...... ~ ...... ~ ...... ~ ... : ... : ...... 4 . 2.14 Subscription AgreeJ;llent...... 4 2.15 . Treasury Regulations .:...... " ...... - ...... 4
.~"': ...... - . m. CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS ...... : ...... : ...... 4 3.01 . Capital Contributions ...... 4 ~ ,. 3.02 Capital ACcount RevaluB.ti.ons ...... :...... 4 . ! , J 3,03 Additional Capital Contributions ...... ;...... : ...... 5 3.04. Capital Accounts .. ,...... :...... ~ ...... :., ...... ~ ...... ; ...... 6 . , ! 3.05 L~ted Liability ...... ~ ...... :_ ...... ,.~ ...... 6 3.06 No Interest on or Right to Withdraw Capital Contributions ...... ~ ...... 6
( 1 IV. COMPANYFUNDS ...... :...... :...... : ...... 6
v: ALLOCATIONS ANDDIS11-UBUTIONS ...... ;...... 7 5.01 Allocation ofProfits or Losses ...... : ...... :: ...... 7 5'.02 Distribution of Cash Flow _...... : ...... , ...... 7 5.03 Code §704(c) Allocations ...... ;...... ; ...... 7 . , 1 ~. 1
, ,, ; S-3862
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4 r 5.04 Varying Interests ...... '" ...... , ...... 7 5.05 lllinois Personal Property Tax Replacement Income Tax ...... 8 ' 5.06 Priority And Distribution of .AI;sets ...... , ...... ~ ...... : ...... 9
VI. M.ANAGEMENT: RIGHTS, POWERS AND OBLIGATIONS OF THE MEMBERS ., .. , ...... 9 i 6.01 Management and'Control in Gen~ral ...... '... ; ...... , ...... '" 9 , I 6.02 Specific Rights and Powers. The Manager is'hereby granted therigbt, power and authority to
,'.j do on behalf of the Company ...... :...... ; ...... : ...... 9 . ( 6.03 Employment of Others, Including Affiliates ...... : ...... : ...... 9 6.04 Compensation to Manager ...... ~ ...... , ...... 10 . 6.05 Expenses ...... , .. .-..... : ...... ~ ...... 10 'j. 6.06 Other Activities ...... 10 i , i 6.07 Title to Property ...... " ...... -... 10 6.08 Liabi1ityoftheManager ..... : ...... ~ ...... ; ..... ~ ... 10 6.09 Indenmification ...... :...... ;...... - ...... 10 6.10 Conversion of Company to Corporation or Other Entity ...... 11 6.11 Tax Matters Partner ...... :...... -...... 11
VII. TRANSFERS OF MEMBERSHIP INTERESTS; ADMISSION OF NEW MEMBERS ...... 11 7.01 Restrictions on Transfer and Withdrawal ...... 11 .. ~ 7.02 Admission of Additional or Substitute Members ...... 12 7.03 Termination of Meinber's Interest in Company ...... ; .... 12 7.04 Substitute or Additional Member ...... :...... 12
vm. REPORTS AND TAX. MATIER.S ...... ,·...... 13 8.01 Books, Reconis' and R~ports ...... : ...... : ..... ~ ...... ~ 13 8.02 Tax Elections ...... :...... ; .... ~ ...... , ...... 13
. ., IX. DISSOLUTION AND TERMJNATION ...... - ...... 14 9.01 . Dissolution of the Compariy ...... 14 9.02 Liquidator...... c ...... 14 9.03 Source of Distributions ...... •...... :...... ~ ...... , ...... 15
;' i :. I : i :x.. POWER. OF ATIORNEY ...... : ...... : ...... ; ...... 15 ! ~ i ; 10.01 Power of Attorney ...... :...... , ...... - ...... 15 10.02 Nature of Power of Attorney ...... 15
XI. WSCELLANEOUS.PROVlSIONS ...... : ...... " ...... 15
. ( }. 11.01 Notices ..... ~.-.: ...... ;...... , ...... 15 . i [ 11.02 Gove~g Law ...... -...... " ...... , ...... 16 U' 11.03 Successors and Assigns ...... :...... , ...... 16.
r >- t f ~ii- .LJ
S-3863
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\ I I 11.04 Counterparts ...... 16 11.05 Modification...... _...... , ...... , ...... 16 . '1 11.06 No Partition ...... ;...... 16 !, 11.07 No Walver ...... c ...... -.••.•••.••••••• , ...... 16 11.08 Gen4er and Number ...... '" ...... " ; ...... ' ...... 17 . 'j 11.09 'Headings ...... : ...... 17 11.10 Validity· and Severability ...... 17 Additional Assurances ...... ~ ...... '. '" ... '" ...... ~ ...... 17 .. 11.11 11.12 No Third PartY Rights ...... " ...... 17 ,i SCII.EDULE A ...... '...... 19
:, i .: .'
q , I .. .i-
t .~ ; I \ \ (}
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AMENDED AND RESTATED OPERATING AGREEMENT FOR REZKO ENTERPRISES, L.L.C.
TIllS AMENDED AND RESTATED OPERATING AGREEMENT is made and entered into as of the 1st day of December 2001, by aDd between Rezko Concessions, Inc. ("Concessions" or the "Manager") and those persons whose names are set forth on ScheduJ.e A attached hereto.
The parties hereto, intending to be legally bound, agree as follows:
WHEREAS, Concessions organized Rezko Enterprises, L.L.C., a Delaware limited liability . company (the "Company"), by the filing of Articles of Organization with the Delaware Secretary of State on December 22,1997;-
WHEREAS, pursuant to a Private Placement Memorandum dated April 13, 1998, the Company accepted subscriptions for Units from Paul S. Ray and Fortunee Massuda (the "Initial Investors");
WHEREAS, also pursuant to a Private Placement Memorandum dated April 13,1998, on April 5, .2000, the Company accepted a subscription for Units in the Company from David Lasko ("Lasko");
WHEREAS, pursuant to a Confidential Information Memorandum dated October --' 2000, the - Company accepted a subscription for l!nits ill the Company from Alber Najjar and Najab Najjar, husban-d and wi~e, as joint tenants (collectiv
WHEREAs; pursuant to a Confidential InfOImation Memorandum- dated December ~2001, the Company accepted a subscription for Units in the company from Michel Malek ("MaJek");
WID;:REAS, the Company has received a capital contribution from Malek and desires to admit him . __ as an additional Member of the Company; and
WHEREAS, Concessions, the Initial Investors, and Lasko and Najjar, also desire to adillit Malek as an additional member of the LLC.
NOW TIfEREFORE, in consideration ofthetenns ~d provisions-contained herein, theparties r 1 agree as follows: - , d r , i ~ l J r 1
S-3865
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ARTICLE I
ORGANIZATION
1.01 Continuation of Limited Liability Company. The parties to this Agreement hereby ~gree to continue the Company as a limited liability company under the "Act"as hereinafter defined, upon the tenus and conditions set forth in this First Amended and Restated Operating Agreement, and agree to execute all documents and perform aU acts necessary to comply with the requirements of a limited liability
" company under the laws of the State of Delaware. The rights an~ liabilities of the Members shall be as j ! provided in the Act, except as otherwise expressly provided. Upon the execution of this Agreement, the Manager shall takeall actions necessary or available to ensure that the Coillpany continues to be classified as a limited liability company under the laws of the State of Delaware.
1.02 Name. The business of the Company shall be conducted under the name of Rezko Enterprises, L.L.c. or such other name as the Manager may designate in writing to the Members. ; r i , , '. ; 1.03 Principal Office, Registered Office And Registered Agent. The principal business offiCe of the Company shall he located at 409 West Huron, Sixth Floor, Chicago, illinois 60610, the Comp?lly's , registered ofl?ce shall be located at 1013 Centre Road, wilmln,gton, Delaware 19805 and its initial' registered agent shall be Corporation Service Company. The Manager may, within its sole and unrestricted discretion, change the principal office, registered office or registered agent of the Company; and in such event, shall give written notice thereof to all Members, and the Manager may establish additional offices of the Company,
, '1.04 Purpose. The purpose of the Company is to operate restaurants and food service establishments including, but notlirnited to, Panda Express and Papa John's restaurants, and all use and . , purposes ancillary thereto. The, Company shall have the power to do all things necessary or useful in ; I . ~ pursuance of the Company business. ; 1 1.05 Fiscru. Year, The fiscal year of the Compap.y -shall be the calendar year or such other fiscal -, U year as the Manager shall determine pursuant to the provisions of Code §706(b). - 1.06 Term. The term of the Company shall commence as of the effective date 01 this Agreement and shall teiminate in accordance with Section 9.'01. _.. , '
ARTICLE n GENERAL , }, i \ L J DEFINITIONS
f, !l ~ 1 -,k used in this Agreement, the following tenns shall each have the meaning set forth in this Article (~ess the context otherwise requires): For purposes of this Agreement, the tenn ' .,r J i i 1 E 2
f 't S-3866
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Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (78 of 129)
'\ p" ) 'j , I '\ } ('I ! J "Person" shall include individuals, corporatiollB, aSE;ociations, partnersbips, limited liability 1 companies, t:ruSts, estates and other entities. \ 2.01 Act shaH mean the Delaware Limited Liability Company Act, as now in effect or as hereafter amended or revised. '1 l , 1.02 Affiliate of a Member shall qlean any person directly or indirectly controlling, contron~by or under commol} control with a Member or Members. 1 , j 2.03 Agreement shall mean this Open~ting Agreement, as the same may be amended or supplemented from time to 'time in accordance with the provisions hereof.
2:04 Bankrupt shall mean, with respect to any Member, the occurrence of anyone or more of the following: (i) 'the making by him of an assignment fqr the benefit of creditors; (n) the filing of an involuntary petition seeking an adjudication ofbanlrruptcy under Chapter 7 oftbe Bankruptcy Code, which filing is not dismissed within sixty (60) days of i?e filing; (ill) the filing of a voluntary petitioI;! by him under Chapter 7 of the Bankruptcy Code; (b) the filing of a voluntary or involuntary petition under Chapters 11 or 13 of the Bankruptcy-Code which isnot dismissed within sixty (60) days of the filing, but only if the Member is not the debtor-in-possession of his assets; (vi) the entry of an order, judgment or' decree by a court of competentjUrisdiction providing for the liquidation of the assets of the Member or appointing a receiver, trustee or other administrator of the Member's assets which continues in effect and uustayed for a period of sixty (60) days; or (vii) the confirmation of any plan ofreorganization imder either Chapter 11 or 13 of the Bankruptcy Code providing for the liquidation of substantially aU of the Member's assets. For purposes of (v) above, a Member shall ,not be considered a debtor-ill-possession of his ass~ts if a trustee, receiver or othe!; person or entity is appointed to, or in fact does, -control or operate .
the. assets of the Member.,
2.05 Banktuptcy Code shall mean Title 11 of the United States. Code, as now in effect or as hereafter amended.
2.06 Cash Flow shall mean all cash received by the Company from all sources (including capital cOIitributions and borrowings), less cash expended or reserved ill the discretion of the Manager for liabilities (contingent or otherwis~), expenses, capital expenditures and obligations oftbe COIDpany or obligati'ons secured by the assets of the Company. "
,. \ - ; I 2.07 Code shall mean the Internal Revenue Code of 1986, as now in effector as hereafter d amended. 2.08 Company shall mean Rezko Enterpris6s, Ll.C., the limited liabilitycornpany formed by the filirig of the Aiticies of Organization, as constituted from time to time. '
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2.09 Manager shall meari Rezko Concessions, Inc. and any successor Manager admitted as such in accordance with Paragraph 9.01 (b), in such person's capacity as 8. Manager.
2.10 Members shall mean the persons set forth on Schedule A attached hereto, and any person admitted as an additional or substitute Member in accordance with Article VII, in such person's capacity as ,a Member.
2.1] Interest shall mean, with respect to a Member, the percentage of ownership 1 Member~hip i interest in the Company of such Member, as set forth on Schedule A.
" 2.12 Memorandurn s1:tall mean, the Private Placement Memorandum dated April 13, 1998, issued I by the Company to each prospective Member upon which such offeree may tnake an investment decision I I whether or not to subscnbe t.o become a Member of the Company.
2.13' Propertysha1l mean, at any time, all property, whether real or personal, interests, assets or rights owned or held by or on behalf of the Company at such time.
2.14 Subscription Agreement shall mean the agreement to subscription for the purchase of Membership mterest(s) in such form as approved by the Manager.
2.15 Treasury Regulations shall mean regulations, including temporary and proposed regulations, pr6m~gated by'Treasury under the Code as now in effect or as hereafter amended
ARTICLE III CAPITAL CONTRIBUTIONS AND CAPITAL
ACCOUNTS
3.01 Capital ContnbutioDS. Concessions previously contributed to the Company its entire partnership interest in Rezko-Citadel, Ltd., an illinois limited partnership, the Papa JobIi's pizza franchises , acquired during the period December, 1997 through April 13, 1998 and all its rights t6 acquire additional " . Papa Jobn's franchises, subject to debt 0($3,500,000, and this capital contribution was valued at , .. $29,500,000. Massuda previously contributed $4,302,550 as her capit81 contribution totbe Company, , $.500,000 of which Was allocated to the ~pjtal account of Concessjons in order to Tefiect the interest in dt J Concessions issued to Mas~d~ ·~d R3.ycontributed $1,000,000 as his capital contrib,utio~ .to,1:he ,'-, ~mpany. Najjar, Lask~, and Malek have each conthouted the sum of $500,000 to theCcimpany as their , f if capital contributionS. The number of Units of each Member and the Membership Interest of each Member 'and Concessions are set forth on Schedule A attached hereto. n j i 3.02 Capital Account Revaluations. Subsequent to the admission of the Wtial I1?vestors, but , l • prior tci the admission of Najjar, Lasko, and Malekceriam distributions were made to Massuda and Ray, , which had the effect ofreducing their capital account balances. In addition, ,", -.l l I ,I 4
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Certain losses were allocated to Concessions, Massuda and Ray in proportion to their respective Membeiship Interests. In order to place the Members in parity and to reflCfCt the appreciation in the value . . of the business and assets .of the Company from the date of the admission of the Initiallnvestors unbl . January I, 2000, the effective date of the admission of Lasko and Najjar (notwithstanding that their capital contributions were made to the Company later in calendar year 2000), the parties agree that the capital accounts of Concessions, Massuda and Ray shall be increased to $29,500,000, $3,802,550 and $1,000,000, respectively, which value shall be conclusive. The book (economic) basis ofthe assets of the Company . shall be correspondingly increased, such increase to be allocated among the Company's assets in the manner detennined by the Manager in accordance with Treas. Reg. § 1.704-1 (b)(2)(iv)(1) and tax allocations with respect to such increases shall be made in the manner described in Section 5.03.
3.03 Additional Capital Contributions. If the Manager determines that aq.ditional capital contributions are needed for Company purposes, the Members shall have the first right, but not the . obligation, t() CQntrjbute the additional capital. In such event, the Manager shall notify the Members of the amount of additional capital needed and the mi.n:imum contribution that will be accepted in the aggregate from each of them. The notice ("Notice") shall also set forth the terms for such additional capital contributions, including, but not limited to, a preference to the individuals making such additional contributions of a share ofpI'ofits, losses and/or distributions of Cash F1ow.
Within fifteen (15) days after the delivery of Notice from the Manager, each Member.may exercise his right to contribute additional capital to the Company by giving written notice to.the Manager that he desires to con'tnbute a9ditional capital. Failure of a Member to so notify the Manager shall constitute a waiver of any rights to contribute the additional capital being requested. If there shall be more than one Member exercising his rights hereunder to contribute additional capital, then. unless limited as hereinafter· provideq, each such Member. who elects to contribute additional capital shall be deemed to have elected to contrIbute such proportion of the additional capital to which the Membership Inter<;st owned by the Member as of the date of Notice bears to the aggregate Membership Interests then owned by all Members who elect to contribute additional capital. However, if any Member by his Notice to contnbute additional capital·limits the amount of additional capital which he desires to contribute to less than the maximum amolUlt of additional capital to which he is entitled to. contnouteas aforesaid, the remaining Members, if any, who have not limited their election to contribute additional capital, shall conf!ibute the teinaiiring additional capital not ·otherwise e1~tedto be contributed'to the Company by the Members, in proportion to their respective Membership Interests. . . . .
The additional capital shall be paid to the Company within fifteen (15) days of written notice from the Manager of the·amoUnt the Member shall contribute. lithe Membersdonot contribute, as aforesaid, all
' ..,; the needed additional capital, the Manager shall have the right to seek new Members 1,IDder terms and conditions no mORfavorable than those under which the Members were solicited for additional capital. Additional capital contributions shall be made upon execution arid acknowledgment of instruments in form and substance satisfactory· to the Manager.
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3.04 Capital Accounts. The Compan:y shall maintain separate capital'acco~ts fOT each Member. The capital account of each MembershaU be credited with his capital contnbutions (at net fair market value with respect to contnbuted property) and shall be appropriately adjusted to refleCt each Member's allocations of profits, gains, losses, deducti~ns, ~e net fair market value of distnbutions .made to the Member and such ~ther adjustmenb. as shall be reqqired by ¢ode §704(b) and the Regulations ,. i promulgated there under. In the event of a permitted transfer of a Membership Interest, the capital account of the transferorshall become the capital ,account of the transferee to the extent it relates to the transferred Membership Interest. ! I . I !
3.05 Limited Liability. The Merri~rs ~hall n(ih~ve'any personal ii~bility for liabilities or obligations of the Company e~cept to the extent oftbeir caPital contnbutious', and the Members shall not be required to make any farther or additional contnbution to the Company or to lend or advance funds to the. Company for any purpose. Notwithstanding the foregoing, (i) if any court of competent jurisdiction holds that distributions (or apy part thereof) received by a Member pursuant to the provisions hereof constitute a return of capital and directs that a Member pay such amount (with or without interest thereon) .to or for the account of the Company or any creditor thereof, such obligation shall be the obligation of said Member and 'Dot of any other Member or the Company, and (ii) a Member ~hall indemnify and hold harm1essthe Company and each Member from any liability or loss incurred by virtue of the assessment of any tax with respect to such Member's allocahle share .oftheprofits or gain oftbe Company.
3.06 No futerest on or Right to Withdraw Capital Contributions. No interest shall be paid by the Company on capital contributions or on the balance in any capital account and no M~mber shall have tbe right to withdraw his capital contnbution or to demand Dr receive a return ofhis capital contnbution ..
ARTICLE IV
COMP ANY FuNDs
All ~ds received by the Company shall be utilized for Company purposes as deternllned by the Manager.in the best interestS of the Company. The Manager or its designee shall have the right to draw checb; payable in such funds and make, deliver. accept and endorse negotiable instruments in connection . with the Company's business. Company funds.shall notbecOIDIllingledwith the ~dsofany other person.
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ARTICLE V ALLOCATIONS AND
DISTRIBUTIONS
5.01 Allocation of Profits or Losses. All profits, gains, losses and deductions sball be allocated among the Members in proportion to their respective Membership Interests. Notwithstanding the foregoing, in the event a Member lends funds to the Company, appropriate adjustments shallbe made to r . ) the foregoing pro rata allocations to reflect th·e requirements of Code § 704(b) that losses and· deductions be allocated to the Member bearing the risk ofloss (and., to the extent appropriate;subsequent allocations ,- I . of profit or gain shall be correspondingly adjusted). i i 5.02 Distribution of Cash Flow. Cash Flow shall be distnbuted to the Members in such amounts and at such intervals as the Manager shall determine in its sole and unrestricted discretion. Any Cash Flow distributed in accordance with the provisions of this Seqtion 5.02·shall be allocated and distrIbuted to the Members in proportion to their respective Membership Interests. Notwithstailding the foregoing, no later than March :3 1 followmg the end of each fiscal year ~f the Company, Cash Flow shall be distnbuted to the Members in an amount eqUal to the excess, if any, of (i) forty percent (40%) multiplied by the aggregate profits and gains (net of any losses and deductions) of the Company, if any, for the entire term of the Company over (ii) the aggregate distnbutions of Cash Flow to the Members for the entire term of the Coinpany. : - ·5.03 Code §704(c) Allocations. In accordance with Code §704(c) and applicable Treasury Regulations, income, gain, loss and deduction with respect to any property con1nbuted to the Company . shall, solely for tax purposes, be allocated among, the Members so as t? take account of any variation between the adjusted baSis of such property tathe Company for federal income tax purposes ·and the va·iue. ascnbed to it under this Agreement, utilizing the "traditional" method ("Traditional Method") as defined in Treas.Reg. §1.704-3(b). In addition., in the event the value of any Company asset IS reqcired to be adjusted pursuant to the provisions of Code § 704(b) and the Treasury Regulations there under, subsequent allocations of income, gain, loss and deduction for tax pUrposes with respect to such asset shall take accOunt of ally variation between the adjusted basis of such asset for federal income tax purposes and its adjusted value, in: the same manner asunder Code §704(c) and the appli(;1lble Treasury R~gulations. Any elections or other decisions relating to such allocations shall be made by the Manager in such manner as it . shall determine in its sole ap.d umestricted discretion. Allocati~ns pms~t tQ'tbis Section ~:03 are soiely for purposes of federal, state and local taxes, as appropriate, and shall not affect, or in any way be taken into account in computing, any Member's capital account or share of profits, losses, other items or d.isipbutions pursuant to· any provlsion of this Agreement.
5.04 Varying ffiterests. In the event of any changes in Membership Interests during the fiscal y~, then forpurposesof this Article V, the Manager shall take into account the requirementS of Code §·706(d) and shall have the right to select any method of determining the varying interests of the Members dtning the year which satisfies Code §706(d), including the l. 7 : ': . j ; ;.
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., ! right to use multiple methods during any particular year. In the event Members are admitted to the Company on varying dates and, pursuant. to Code §706(d), profits and losses are consequently allocated. among the Members to reflect such varying admission dates ("varying admission allocations''), subsequent allocations of profits and losses shall be made to the Members to offset such varying admission allocations.
5.05 lllinois Personal Property Tax Replacement Income Tax. Notwithstanding any of the . , provisions of this Agreement, in the event the Company incurs a tax liability under the Personal Property· Tax Replacement Income Tax of the Stat~ of illinois (111. Rev. Stat. Ch. 120, §2-201 et seq. (1997)), as aniended from time to time (the "Replacement Tax"), the effect of the Replacement Tax on the Company shall be treated in accordance with the provisions oftllls Section 5,05 and all other provisions of this Agreement shall be deemed .appropriately modified. If the Replacement Tax expense of the Company is reduced by reason of certain., but Dot all, of its Members 'being entities subject to the Replacement Tax (the "Subject Entities"), the following allocation of Company profits and losses and distribution of Company assets shall be made:
(a) For pllIJloses of allocation of profit or loss of the Company pursuant to this Article V, no deduction shall be taken for the Replacement Tax expense of the Company;
(b) The Replacement Tax expense of the Company shall be allocated to the Members who are not Subject Entities in proportion to the profit of the Company allocated to such Members pursuant to this Article V (taking into account paragraph (a) above); and
(c) The Company shall then compute its Replacement Tax liability as if none of its Members were SUpject En~ties and shail subtract there from the amount of its actual Replacement Tax . expense, as aforesaid, and cash in the amount of such difference shall be distributed to the Members· which are Subject Entities in proportion to the amount of profit or loss of the Company for such period allocated to such Members pursuant to this Article V (taking mto account paragraph (a) above).
The amounts allocated and distributed as provided in paragraphs (b) and (c) above shall be charged to the respective capital accounts of the Members to whom allocated or distributed.
It ~s the intention of the Company that no Member shall bear the burden of more than his pro rata ,ii share of the Replacement Tax liability generated by the activities andlor investments of the Company and that appropriate allocatioDS:and distnbutiODS shallbe made so as to effect such result regardless of . whether the Company or its Mei:nb~ or Affiliates of any of its Members are the entities responsible for. ultimate payment of the ReplaceIll~t Tax to the State oflllinois. 'the above-descnbed calculations shall
be modified if at any time such inodification. shall be necessary to effectuate such intent. The. principles of this Section 5.05 shall also applyifthe Company Isstibject to any other tax the computation ofwmch depends in whole or in part up0Q, the character of the Members.
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5.06 Priority And Distribution of Assets. Except as otherwise provided herein, no Member shall have priority over any other Member either as to the return· of capital or ruLto profits, losses or dis1nDUti aIlE.
ARTICLE VlMANAGEMENT; RIGHTS, P.OWERS AND OBUGATIONS OF THE
MEMBERS
6.01 Management and Control in General. The Manager shall have full and exclusive power to .,. manage and control the business and affairs ofllie Company, and the Members shall have no right to act I on behalf of or bind the Company. The Manager may, howev~[, delegate its power of decision, in whole I ... ! . or in part, to any person (whether such person is or is not a Member), whether by power of attorney, action taken under contract or otherwise. The Manager shall hfive all the rights, powers and obligations of a .. -- manager as provided in the Act and as otherwise provided by law, and any action taken by the Manager shall constitute the act of and serve to bind the Company. Such officers of the Manager as it shall authorize may act for it in its name in the exercise of any of its rights and powers hereunder. In dealing with the Manager or authorized officers of the Manager acting for on behalf of the Company, no person shall be required to inquire into, and all persons are entitled to rely conclusively on, the authority of the Manager or such authorized officers of the Manager to bind the Company.
6.02· Specific Rights and Powers. The Manager is hereby granted the right, power and authority to do on bebal1 of the Company all things Consistent with this Agreement which are connected with or . incidental to the business of the Company; including, but not limited to, to cause the Company to acquire and finance the acquisition of Company Property; to operate, manage, lease; encumber or otherwise deal with all or any part oftbe Comp _, i Member on such terms as the Manager in its sole and unrestricted discretion shall determine; to seD, exchange or convey, and to grant an option for the sale, exchange or conveyance of all OJ any portion.of the ~mpany Property at such price or amOlmt. for cash; notes, securities or other property, and upon such . other 'terms as the Manager deems proper in its sole and umestricted discretion; and to enter into, eXt?Cute, ackllowledge and deliver any and all contracts, agreements or other instnnnents necessary or appropriate to effectuate any or all of the foreg n! I 6.03 Emp10yment of Others, Including Affiliates. The Manager shall not be required to devote ( , , I full time to the affairs ofllie· Coillpimyand shall devote such time to Company affa~, as it-in its·sole and ,i ,~ \ }. unrestricted discretion deems necessary to manage and supervise the operations and buSiness of the Company. Nothing contrined in this Agreement shall preclude the employment by the Manager, on behalf of and at the eXpense of the Company, of any agent or third parly to operate·and manage all or any portion of the Property or to proviile any service relafug t() the business, subject to the control of the·Manager.. The ManagerulaY, on behalf of the Company, engage one or more Affiliates of the Manager to render services to the Company, provided that any such engagement shall be upon terms and condition·s no less favorable to the Company than could be obtained from an.indepeildent third party. Neither the Company nor any of the Members shall have, as a consequence of the relationship created hereby, any right in or to (i any inc9rne or profits derived by the Manager or an Affi.I.iate C?f the Manager from any business U arrangements .with the Company that are .consistent With this Section. r t U 9 .r ,,. S-3873 SuppA 42 Case: 1:12-cv-09683 Document #: 23-4 Filed: 02/01/13 Page 15 of 24 PageID #:335 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (85 of 129) 6.04 Compensation to Manager. The Manager shall be entitled to receive reasonable compensation for services rendered to the Company. , j i 6.05 Expenses. The Company shall pay all costs and expenses arising from or relating to the j organization ofthe Company, the acquisition of Property and the commencement and continuation of' Company operations. 6.06 Other Activities. Duiing the term, of this Agreement, the Manager and any Affiliate of the Manager may engage in or possess an interest in other business ventures or investments of any kind, including,but not limited to, ventures engaged in owning, operating or managing businesses or properties similar to or competitive with those businesses or properties owned or operated by the Company. The fact that the M~ager or imy Affiliate of the Manager may ~vail itself of such opportunities, eitherby itself or with other persons, including persons in which it has an interest, and not offer such opportunities to the Company or to a Member, shall :pot subject the Member or such Affiliate to liability to the Company or to any other Member on account oflost opportunity. Neither the Company nor any Member shall have any right by virtue of this Agreement or the relationship created hereby in or to such opportunities, or to the income or profits derived there from, and the pursuit of such opportunities, even though competitive with the business of the Company. shall not be deemed wrongful or improper or in violation of this Agreement 6.07 Title to Property. Title to Property shall be taken in the name of the Company or in the name, or names of a nominee or nominees designated by the Manager. 6.08 Liability of the Manager. The Manager and any Affiliate of the Manager, and their respective officers, shareholders, controlling persons, directors, agents and employees, shall not be liable, resPonsible or accountablem d~ges or otherWise to the Comp~y or to any of the Members, their successors or permitted assigns, except by reaSon of acts or omissions due to gross negligence or willful misconduct Any action taken in good faith in reliance upon and in a~ordance with the advice or opinion ,of co~el shall be conclusively deemed not to conStitute gross negligence or willful misconduct. 6.09 Indemnification. The Company shall indemnify, defend and hold harmless the Manager and ,,', any Affili~te oftbe Manager (the "Iud(!mnified PartY'.) who was or is a party or is threatened to be made a party to any threatened; pending or completed action, "SUit or proCeeding, whether civil, criIDinal, administrative' or investigative (~clud.ing any action by or in therig~t of r \ " I { i 10 " I :. I} ".. J S-3874 SuppA 43 Case: 1:12-cv-09683 Document #: 23-4 Filed: 02/01/13 Page 16 of 24 PageID #:336 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (86 of 129) the Company), against losses, damages, claims or expenses actwilly and rellfonably incurred by it for i which such Indemnified party has not otherwise been reimbursed (including reasonable attorneys' fees, 1 I judgments, fines and amounts paid in settlement) in connection with such action, suit Or proceeding, by .1. reason of any acts, omissions OJ; alleged acts or omissions aris.ing out of the Indemnified paity's activities as a Manager, or as an officer, shareholder, director, agynt or employee of the Manager, on behalf of.the _ Company or in furtherance of the interests 'of the Compai::ly, so long as the Indemnified Party did not act in a manner constituting gross negligence or willful misconduct The termination oLany action. suit or proceeding by judgment, order, settlement, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption thatthe Indemnified Party's conduct constituted gross negligence or Willful misconducl , i I 6.10 Conversion of Company to Corporation or Other Entity. The Members have selected a ! limited liability company as the entity in which to operate the business of the Company. However, in the future the Manager may determine that it may be neees.sary to change the legal form in which the business I 1 . of the COIDpany is operated, including, by means of example but not limitation, to convert the Company to i " : a corporation so as to enable it to participate in a public offering of its stock. Accordingly, in the event the Manager in its sole and unrestricted discretion determines it is in the best interests of the Company that it be converted to B corporation: or any other type of entity, each Member agrees to execute such documents and take such other actions·as shall be determined· to be necessary by the Manager to effeCtuate such conversIOn. '6.11 Tax Matters Partner.The Manager shall be the "tax matters partner" for purposes of Subchapter C of Chapter 63 of Subtitle F of the Code (Code §§6221:"6233), and shall have the authority to exercise all functions provided for in said Act, or in regulations promUlgated hereunder by Treasury, including, to the extent permitted by such regulations, the authority to delegate the function of "tax matters partner" to any other perso~. The Manager shall be reimbursed for all reasonable" expenses incmred as a result of its duties as tax patters partner. In the event the Manager resigns as tax matters partner or as a Manager, or its entire Membership Interest is disposed of or terminated, the successor Manager shall become the tax matterS partner. ARTICLE VU TRANSFERS OF MEl\ffiERSHIP INTERESTS: ADMISSION OF NEW MEMBERS . 1 7.01 Restrictions on Transfer and Withdrawal. A Member roay not sell or transfer all or any part ! J t .1 of his Membership Illterest or withdraw from fue Company except with the prior written 'consent of the Manager, which consent may be withheld by the Manager in its sole and unrestricted discretion. Any sale r'I or transfer V1ithout said cOnsent shall be null and void and confer DO rights on the transferee as against the I I t ..1 Company or as against the Manager. In addition, f \ ~. j S-3875 SuppA 44 Case: 1:12-cv-09683 Document #: 23-4 Filed: 02/01/13 Page 17 of 24 PageID #:337 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (87 of 129) before a permitted transferee shall be admitted to the Company as a substitute or additional Member, the conditions set forth in Section 7.05 must be satisfied. 7.02 Admission of Additional or Substitute Members. No person may be admitted as a substitute MeIDher without the prior written consent of the Manager, which consent may be withheld by the Manager in its sole arid unrestricted discretion. Moreover, it is anticipated that employees of the Company (or I employe~s of the Manager) may be admitted as Me~bers from time to time upon the detennination of the Manager-in its sole and unrestricted discretion, upon such terms as the Manager determines, even if the I I eff~t of the adi-nission- is to dilute the Membership Interests of the Members. In such event, any dilution ) - shall be home by-all Members in proportion to their respective Membership Interests. -7.03 Termination of Member's Interest in Company. A Member's death, a Member becOming Bankrupt or the terIDination of a Member's- interest in the Company (by with 7.04 Substitute or Additional Member. (a) A person shall only be admitted as a substi~te or additiol).al MeIIl-q~r under this Agreement in compliance with the fol1owmg:. (i) a transfer conteinplated by Section 7.01 shall be made only by written document, signed by the transferor Member and a6ceptedin writing by the transferee, and a duplicate original of such document shall be delivered to the Company and consented to by the Manager in writing (which consent may be withheld in fue sole and unrestricteddisyretion ofllie Manager); (Ii) the transferee shall execute and deliver to the Company a written agreement, in fomi reasonably satisfactory to the Manager, pursuant to which said person agrees to be boUnd by this Agreement and grants the power of attorney contained in this AgreeI1)ent; and- ; l (b) In the event a transfer is made in accordance with the teIms ofthisArtic~e, unless l i- o~erwise required by the Code: ;. 1 ! , i 12 ... ,- :- , -f .- i : ... }: S-3876 SuppA 45 Case: 1:12-cv-09683 Document #: 23-4 Filed: 02/01/13 Page 18 of 24 PageID #:338 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (88 of 129) t (i) the effective date of such transfer shall be the date the written documents described in Subparagraphs 7.04(a)(i) and (ii) are approved by the Manager; and l I ) (ii) the CompaI1Y and the Manager shall be entitled to treat the transferor Member ~ the absolute owner of the transferred Membership Interest in all " "J respects and shall incur no liability for distributions or allocations made pursuant to Article V in" good faith to such transferor until such time as the written documents described in Subparagraphs 7.04(a)(i) and (ii)) are approved by the Man.ager. (c) The costs incurred by the Company associated with the admission of a substitute or additional Member contemplated by this Article (including reasonable attorneys' fees) shall be borne by the transferee . . ? ARTICLE VIII REPORTS AND TAX MATTERS 8.01 Books, Records and Reports. (a) Accurate books, records and accounts shall be maintained by the Company showing its assets, liabilities, operatioIlS, 1:ral}Sactions and financial condition, as well as the names and addresses of the Members. The Company books and records shall be kept under such generally accepted accounting principles as the Manager"n:my d,eten;nine. The Company boob shaUbe maintained at the principal office of the" Company, and each Member shall have the right upon reasonable notice given to the Company to inspect, extract and copy sUyh booles "during regular business bours of the Company. (b) ~e Manager shall cause income tax returns for the Company to be prepared and filed with the appropriate authorities. Wit1lln ninety days after the clo'se of each fiscal year of the Company. the Manager shall send to each person who was a Member at any time during such fiscal year such information as will be sufficient to prepare documents which may be required to be filed under 1 relevant federal and "state income tax ~aWs. ; i ~. J " (c) Within ninety (90) days "after the close of the Company's fiscal year, the Manager ; -1 shall make the best effort t9 ~aUse each Mem:her to Teceive financial statements of the Company for the ; "i fiscal year ended (including a balance sheet and statement of income) prepared by (or at the direction of) the Manager. r 1 i I "~ I 8.02 Tax Elections: The Manager shall have the power to millee such tax elections as it considers appropriate in its sole and unrestricted "discretion . . j . ! 13 ( 1 : ! I ..1 S-3877 SuppA 46 Case: 1:12-cv-09683 Document #: 23-4 Filed: 02/01/13 Page 19 of 24 PageID #:339 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (89 of 129) n.---, n i. I ARTICLE IX DISSOLUTION AND TERMINAnON (1 9.01 Dissolution of the Company.}he Comp~y shall dissolve and be,terminated on December I 31,2096, or upon the earlier happening of anyone of the following: (a) upon the sale of substantially all of the Property or other conversion of substantially all the Company's assets to cash; ., (b) as applicable, upon the death, retirement, resignation. Bankruptcy, court declaration . i I .. \ ) of incompetence with respect to, or dissolution of the Manager, unless within ninety (90) days thereafter Members holding a majority of the Membership Interests appoint a successor Manager; or ( c) entry of a decree of judicial dissolution under Section 18-802 of the Act , 9.02 Liquidator. ) - (a) Upon dissolution of the Company. the Manager, or if there is no Manager. such person as the Members holding a majority of the Membership lnterests may designate, shall act as liquidator of the Company (in either case, the "Liquidator"). The LiquidatOr shall, with rea·sonable speed, wind up the affairs of the Co~pany and liquidate the Property. The Liquidator shall have unlimited ; ! discretion to determine the time, manner and terms of any sale of-Property having due regard to the : i I 1 activity and condition of the relevant market and general financial and economic conditions. The 'Liquidat~~ shail distrib~k any proceeds received from th~ disposition of the Property and any other assets :,·1. i of the Company in acCordance with the Members respective positive capital aCcOlmt balances. The capital : i :. j accounts of the Members shall also be adjusted to reflect any gain or loss that would be recognized upon the sale of any Property (at its then fair market value, as determined by the Liquidator) that the Liquidator ! } desires to distribute in kind to the Members. In the liquidation of the Company, the Liquidator may JI distribute Property in kind to the Members, which shall not be required to be pro rata as among the Membyrs; provided, however, that no Member shall receive Property or procee ( c) The Liquidator shall comply with all requirements of the Act and other applicable . law pertairring to th.e winding up of a limited liability company, following whlch the Company shall stand liquidated and terminated. . . -. 14 nu ~, tI 4...1 S-3878 SuppA 47 Case: 1:12-cv-09683 Document #: 23-4 Filed: 02/01/13 Page 20 of 24 PageID #:340 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (90 of 129) 9.03 Source of Distributions. Each Member shall look solely to the assets of the ~mpany for all distributions with resPect to the Company, the retuin of his capital contribution thereto and his share of .. profits or losses thereof, and shall have no recourse therefore (upon dissolution or otherwise) against any . !I other Member or Manager. ."\ i ARTICLE X POWER OF 1 ATTORNEY 10.01 Power of Attorney. Each Member, by executing this Agreement or a counterpart hereof, does hereby irrevocably constitute and appoint the Manager, the Chairman offue Board, the President and any Vice President of the Manager, and each of them, and any successor Manager of the Company, with full power of substitution, as such Member's true and lawful Attorney~in-fact (the "AttorneY-in-Factlf),.in , i his name~ place and stead, to execute, acknowledge, swear to, deliver, file and record such documents which are DOW or may hereafter be required by law to be filed on behalf of the Company or are deemed necessary or desirable by the Manager to carry out fully the provisions oftbis Agreement in_ ~ccordance with its terms. 10.02 Nature of Power of Attorney. The grant of authority in Section 10.01 by each Member (i) is r . ~ a special power of attorney coupled wi,th an interest in favor·oftbe Attorney-in.-Fact and as such shall be irrevocable and shall survive the death or legal incapacity of the Member; (ii) may be exercised for the Member by a facsimile sigilature of the Attorney-in-Fact; and (iii) shall survive the assignment by the Member of all or any portion of his Membership Interest, e>;.cept that where the assignee of the entire Membersbip Interest of the Member has furnished a power of attorney and has been approved by the Company for admission to the Company as a 'substitute Member pursuant t~ Article vn, tJie power of ~ttorney granted in Section 10.01 shall survive such assigrullent for the sole plllpose of enabling the Attorney-in-Fact to execute, acknowledge and file any in~ment necessarito effect such substitution and shall thereafter terminate. ARTICLE XI MISCELLANEOUS PROVISIONS ( \ , I 11.0 1 Notices. All notices or other communications required or permitted to be given pursUant to !. t t ): this Agreement shall be in writing and shall be considered as properly given: (i) in the case of a report to be. given to a Meml?er, if personally .delivered or if mailed by Umted States first-class mail, postage ('. Ir i \ prepai~ addressed to·such Member at his address on the rec~rds of the Company; and (ii) in the case of ct notices' or comm~cations to be given to any Member, if personally deliVered or· if mailed by United States fust-class certified or registered mail, return receipt request~ postage prepaid, or if sent by prepaid telegram, ~lex .or private courier service 15 ; .~ l. ; ,. , S-3879 ~ ~ SuppA 48 Case: 1:12-cv-09683 Document #: 23-4 Filed: 02/01/13 Page 21 of 24 PageID #:341 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (91 of 129) addressed to such Member at his address on the recordS of the Company. A Member may change his address for notices by giving notice in like manner. Any notice or other communication shall be deemed to' . have been given to, or received by, the appropriate party as of the date on which it is personally delivered or, if mailed, on the third business day after the date on which it is deposited in the United States mail, or if telegraphed, telexed or sent by private c:ourier service on the business day after it is transmitted. "11.02 Goverrring Law. This Agreement shall be goveme 11.03 Successors and Assigns. This Agreement and all theterms and provisions hereof shall be binding upon and shall inUre to the benefit o!the Members and their respective heirs, executors, . ~ I administrators, successors and permitted assigris. Any person acquiring or claiming an interest in the i . Company, in any manner wh.li.tsoever, shall be subject to and bound by~n the terms,conditions and obligations of this Agreement to which his predecessor in interest w3.:s subject or bound, without regard to whether such person has executed this Agreement or a counterpart hereof or any other document conte~plated hereby. No person shall have any rights or obligations relating to the Company greater than those set forth in this Agreement and no person shall acquire an interest in the Company or become a '.~ '1 ; : Member thereof except as permitted by the te~ of this Agreement. 11 .04 Counterparts. This Agreement may be executed in any number of identical counterparts, each of which., for all pmposes, shall be deemed an original; and.aU of which consti"tUte, collectively, one and the same Agi-eeme~l In addition, this Agreement may contain more than one counterpart signature page and may be executed by the affixing of the signature of each of the Members to one of such counterpart signature pages and all such counterpart signature pages shall be read as one and shall have the same force and effect as though all the signers had si.gned the same signature page. 11.05 Modification.Ibis Agreement constitutes the entire understanding of the parties hereto with respect to the subject matter bereof and supersedes any and all prior negotiations, UDd~standings and agreements in regard hereto. This Agreement may not be amended except with the unanimous consent of all the Members; No amendment, modification or alteration of the terms hereof shall be b-indingunless the same is in writing and is effected in accordance with this Agreement 11.06 No Partition. Each of the' parties hereto irrevocably waives during the t~ of the Company any right that he may have to maintain any action for partition with respect to Company Property. : 1 11.07 No Waiver. Failure or delay of any party in exercising any right or remedy. under this i t Agreement, or any other agreement between the parties, or otherwise, shall not operate as a waiver thereof. t ] The express waiver by any parly of a breach of any provision oftbis Agreement 16 S-3880 SuppA 49 Case: 1:12-cv-09683 Document #: 23-4 Filed: 02/01/13 Page 22 of 24 PageID #:342 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (92 of 129) by any other party shall not operate or be construed as a waiver of any subsequent breach by said party. No waiver shall be effective unless and until it is in written form and signed by the waiving party. 11.08 Gender and Number. Wherever from the context is appears appropriate, each term stated in either the singular or plural shall include the singular and phrral, and pronouns stated in either the . n masculine, the feminine or the neuter gender shall include the masculine, fe.minine and neuter. [I 1l.09 Headings. The captions in this Agreement are inserted for conve:ruence ofreference only and shall not affect the construction of this AgreemenL References in this Agreement to any Article, Section, Paragraph, Subparagraph or Schedule are to the same contained in this Agree·menL [1 11.10 Validity and Severability. If any provision of this Agreement. contravenes any la~ and such contravention would thereby invalidate this AgreeIDen~ or make a Member generally liable for the obligations 9f the Company, then such provision is" de-dared to be invalid and sul;>ject to severance from i I !1 the remaining portion of this Agreement and this Agreement sba·U be read and construed as though it did l .' not contain such provision in a manner to give effect to the intention of the parties to the fullest ex.tent . possible. . 11.11 Additional Assurances. Upon the request of the Manager, each Member agrees to perfonn all further acts and execute, acknowledge and deliver any documents which the Manager deems reasonably necessary to effectuate the provisions of this Agreement. 11.12 No Third Party Rights. This Agreement and the covenants and agreements contained : I herein are solely for the benefit of the parties hereto and their Affiliates. No other person shall be entitled.to enforce or make any claims, or have any right pursuant to the provisiDns of this Agreement. . i~ i ; 1 f 1 u n· l } ni. 1 17 ! f ; 1 ( 1· S-3881 SuppA 50 Case: 1:12-cv-09683 Document #: 23-4 Filed: 02/01/13 Page 23 of 24 PageID #:343 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (93 of 129) I ~ I . ! IN WITNESS WHEREOF, the Members have causyd this First Amended and Restated Operating Agreement to be executed as of the date first set forth above. REZKO CONCESSIONS, INC. By. ~. ______Antoin S. Rezko, Presjdent Paul Ray Fortunee Massuda Albert Najjar Najah Najjar David Lasco Michel Malek :1 } : i .~ .: { "j." . : . ,; i.. ; 8-3882 ·18 SuppA 51 Case: 1:12-cv-09683 Document #: 23-4 Filed: 02/01/13 Page 24 of 24 PageID #:344 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (94 of 129) ! ,J i i , I SCHEDULE A AMENDED AND RESTATED OPERATING AGREEMENT FOR REZKO ENTERPRISES, L.L.C. Membership Revalued Capital Name & Address Units Interest Account Balance " i Rezko Concessions 83.99% $29,500,000 I th \ 409 West Huron, 6 F100r Chicago, IL 60610 Paul Ray 4 2.57% $1,000,000 16W665 Hillside Lane , - WilloWbrook, lL 60527 i i . ,- ' Fortunee Massuda 10.145 9.80% $3,802,550 ,175 East Delaware Place, #770 Chicago,IL 60611 Albert Najjar 2 1.32% $500,000 6915 Latrobe Skokie, IL 60077 David Lasco 2 1.32% $500,000 Lasco Development Corp. 10787 Randolph Street Crown Point, 1N 46307 Michel Malek 2 1.0% $500,000 577 West Hawthorne Place Chicago, n. 60.657 " TOTAL _ 20.145 100% $35~802,550.00 : , ~ } , 1 1 f I , ~ 1 , J ; -\ f· S-3883 SuppA 52 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (95 of 129) GENERAI.RELEASE AND SETTLEMENT AGREEMENT This General Release and Settlement Agreement,dated as of October 19,2012 (this "Agreement" or"Settlement Agreement"},is entered into among Panda Express,Inc., Panda Restaurant Group,Inc., Citadel Panda Express,Inc., Andrew Cherng,Peggy Cherng,and R. Michael Wilkinson{ "Defendants")on the one hand, and Semir D.Sirazi ( "Mr. Sirazi")and PE Chicago, LLC( "PE Chicago," and together with Mr. Sirazi, "Plaintiffs")on the other hand. Each of Plaintiffs and Defendants is individually referred to as a "Party" and collectively as the "Parties." RECITALS A. WHEREAS,on or around July 28, 2010, Plaintiffs filed a First Amended Complaint in the United States District Court far the Northern District of Illinois (the "Court") against Defendants alleging causes of action for unjust enrichment, fraud, civil conspiracy, breach of fiduciary duty, breach of contract, aiding and abetting a breach of fiduciary duty and vialatians ofthe Illinois Uniform Fraudulent Transfer Act(the "Action "), based aeon the transfer ofPE Chicagds 50% interest in the Rezko-Citadel Partnership in June 2006. A hue and correct copy of the First Amended Complaint is attached hereto as Exhibit A; and 1 SuppA 53 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (96 of 129) SuppA 54 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (97 of 129) SuppA 55 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (98 of 129) 4. RELEASES AND DISMISSALS WITH PREJUDICE 4.1 Plaintiffs' Release of Defendants Plaintiffs, on behalf of themselves and their As partof this Settlement Agreement, agents,employees, officers, directors,representatives, assigns,heirs, executors, trustees, joint venturers, partners, attorneys, successors and assigns, and each of them, do hereby absolutely, dully and forever release,relieve, waive,relinquish and discharge Defendants and all oftheir past, present and future partners, officers, directors, employees,agents, attorneys, parent companies (including Rezko Concessions, Inc. and Rezko Enterprises LLC), subsidiaries, affiliates, stockholders,accountants, insurers, predecessors, successors, assigns, and divisions (the "Released Parties"), of and from all disputes, claims, causes of action, actions,judgments, liens, indebtedness,costs, damages, obligations, attorneys' fees,losses, 4 SuppA 56 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (99 of 129) liabilities and demands of whatever kind and character that now exist, or may exist or have existed, from the beginning of time until the present, known or unknown, foreseen or unforeseen, liquidated or unliquidated, potential or actual, against Defendants arising from all matters, facts, events and circumstances relating to tlae Rezko-Citadel Partnership (the "Released Claims"). Other than ?VIr. Sirazi's claims in the United States Bankruptcy Court of the Northern District of Illinois {Petition No. 08-11591), Plaintiffs further agree that they have not and sha11 not file or submit any claims,requests, suits, complaints, causes ofaction, demands,disputes, affidavits, arbitrations, proceedings or other actions with any regulatory or administrative agency or other organization with xespect to matters related to or arising under the Released Clauns, and any such claims, requests, suits, complaints, demands, disputes, affidavits, arbitrations, proceedings or other actions filed yr submitted prior to the execution of this Settlement Agreement shall be dismissed or withdrawn with prejudice. Notwithstanding anything to the contrary in this Section 4.1, Plaintiffs do not release Defendants from any oftheir obligations under this Settlement Agreement. 4.2 Defendants' Release of Plaintiffs As part ofthis Settlement Agreement,Defendants, on behalfof themselves and their agents, employees,officers, directors, representatives, assigns,heirs, executors, trustees, joint venturers, partners, attorneys, successors and assigns, and each of them, do hereby absolutely,fully and forever release,relieve, waive,relinquish and discharge Plaintiffs,their agents, O~CCTS~ d1I'CCtOZS~ P111p10y0eS~ I~Y'ESeI1t3t1Vf.S~ SUCC~SSOrS~ 8SSI~ILSs ~le1TS~ eXeCUtOTS~ trustees,joint venturers, partners, and attorneys of and from all disputes, claims, causes of action, actions,judgments, liens, indebtedness, costs, damages,obligations, attorneys' fees, losses,liabilities and demands ofwhatever kind and character that now e~cist, or may exist or have existed,from the begirming oftime until the present, known or u~►lrnown, foreseen or unforeseen,liquidated or unliquidated,potential or actual, against Plaintiffs arising from ail matters, facts, events and circumstances relating to the Rezko-Citadel Parhr~ership. Other than Defendants' claims in the United States Bankruptcy Court for the Northern District of SuppA 57 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (100 of 129) Illinois {Petition No.d8 -11591}, Defendants further agree that they have nat and shall natfile or submit any claims, requests, suits, complaints, causes of action., demands, disputes, affidavits, axbitrations, proceedings or other actions with any court, regulatory or administrative agency or other organization with respect to matters related to or arising under the Released Claims. Notwithstanding anykhing to the contrary in this Section 4.2, Defendants do nat release Plaintiffs from any of their obligations under this Settlement Agreement. 6 SuppA 58 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (101 of 129) SuppA 59 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (102 of 129) SuppA 60 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (103 of 129) SuppA 61 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (104 of 129) 10 SuppA 62 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (105 of 129) 1~ SuppA 63 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (106 of 129) 12 SuppA 64 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (107 of 129) IN WITNESS WHEREOF,the Parties have caused this Settlement Agreement to be executed as of the dates set forth below. ACCEPTED AND AGREED Dated: October _,2012 By. Semir D. Sirazi Dated: October ~,2012 By: Name: Title: For PE Chicago, LLC Dated: October2.~, 2012 By: Andrew g Da#ed: October"L3 2012 By: ._ Peggy Cherng,Ph.D. Dated: October ,2012 By: R, Michael Wilkinson Dated: October~ 2012 By: `~-~~-~-~-~--- Name: (~1 Title: ~D ~ ~!~,IYC~I'~~n ~i 0 ~- ~~ For Panda Express, Inc., Panda Restaurant Crroup, Inc., Citadel Panda Express,Inc. Dated: October_,2012 By: Name: Robert S. Crrab~mann Title: Attorney For Daspin & Aument LLP 13 SuppA 65 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (108 of 129) IN WITNESS WHEREOF,the Parties have caused this Settlemen# Agreement to be executed as ofthe dates set forth below. ACCEPTED AND AGREED Dated: October_,2012 By: Semir D. Sirazi Dated: October ~,2012 By: Name: Title: For PE Chicago,LLC Dated: October_,2012 By: Andrew Cherng Da#ed: October,Y 2012 By: Peggy Chemg,Ph.D. Dated: October^,2012 By: ~ ~..~~,.~A~-~-~ ~-~•+~? r-tile... R Michael Wilkinson Dated: October ~,2012 By: Name: Title: For Panda E~cpress, Inc., Panda Restaurant Croup,Inc., Citadel Panda Express,Inc. Dated: October ~,20I2 By: Name:Robert S. Grabemann Title: Attorney For Daspin 8t Aument LLP I3 SuppA 66 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (109 of 129) Dated: October~ 201 By: ,~ G ~`'"''~ Name• Christopher D. Dusseault Title: Attorney Fox Gibson Dunn & Crutcher LLP Dated: October~ 2012 By Name• Joe Marconi Title: Attorney 14 SuppA 67 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (110 of 129) 1N 1~~ITN.ESS I~THEKLOP, ll~e Parties have caused this Settlenieilt r'~gcee~uent to ve elecuted as of tl~e dates set foi~li belotiv. ACCEPTED AND ~GREEll c ~ ! ~~ Dated: October 23, ZU.I Z By: Sen~ir D. Sirazi r Dated: ~ctober?3,?012 73y: ~ ~ P Nc1111G': ~Y.,I ~ ~ ~ ~~3Vf~Z,'~ Title: 1~'t,d~~'r46~.- -- For PE Clucaga, LLC Dafied: October T,2012 BSJ: Andret~ Cherng Dated: October`. 2012 By: Peggy Chei7ig; PIi.D. Dated: October _,2d12 By: R. Michael. Wilkinson Dated: Octobez ~,2012 B}~: I`~ame: Title: Far Panda Express, Inc., Yaitda Resiatuaizt Grai~p, Inc., Citade Wanda Express, Lrac. Dated: October2.3; 2012 By: /V Nance: IZobei~t S. Grabe~~a~m Title: .~ttoi7iev For Daspin & Aument LLP 13 Error: No property name supplied. SuppA 68 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (111 of 129) 9 SuppA 69 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (112 of 129) o~ra,,,~o,n~~ase: 1:~8-cv-02345 Document#: 318 Filed: 04/25/12 Page 1 of 1 PagelD #:6740 United States District Caurt, Northern District of Illinois Name of Asaigaed Jrdge ~a~ew F. Kennelly Shtix~ Jndge it Other or Msgixtrate Judge ~y~ A86igned Judge CASE NUMBER 08 C 2345 DATE 4/25/2012 CASE Sirazi vs. Panda Express, et al TITLE M]f~It1A`i~ RN iT?V 'ITi.Y'T The judgment is entered as follows: on Counts 1, 2, 5, 6, and 8 of plaintiffs' first amended complaint, in favor of defendants Panda Express, Inc., Panda Restaurant Group, Inc., and Citadel Panda Express, Inc. and against plaintiffs Semir Sirazi and PE Chicago, LLC; on Count 7 of plaintiffs' first amended complaint, in favor afi plaintiff PE Chicago, LLC and against defendant Panda Express, Inc. in the amount of $5,144,000, and in favor of atl other defendants Docking m mau notices. ~[For further details see text below.] STA' and against plaintiff. on Counts 3 and 4 of plaintiffs' first amended complaint, in favor of plaintiff Semir Sirazi and against defendants Panda Express, Inc.,-Panda Restaurant Group, Inc., Citadei Panda Express, Inc,, Andrew Chemg, and Peggy Chemg,jointly and severally, in the amount of $1,1~U,000 for compensatory damages, and for punitive damages individually as follows: against Panda Restaurant Group, Inc. in the amount of $2,oao,000, against Andrew Cherng in the amount of $2,000,000, and against Peggy Chemg in the amount of $2,000,000. on Counts 3 and 4 of plaintiffs' first amended complaint, in favor of all defendants and against plaintiff PE Chicago,tLC. on the counterclaim of defendant Panda Restaurant Group, lnc., in favor of defendant and against plaintiff PE Chicago, Ll.0 i~a the 3maur~t of $858,327.08. CowUnam Deputy ~ OR Initials: 08C234S Sirazi vs. Panda Express, et al Page 2 of 1 SuppA 70 Case: 1:12-cv-09683 Document #: 49 Filed: 05/14/13 Page 1 of 9 PageID #:816 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (113 of 129) IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION DR. FORTUNEE MASSUDA, an Illinois Civil Action No. 12-CV-09683 resident and citizen, Honorable Ronald A. Guzman Plaintiff, v. PANDA EXPRESS, INC., a California cor- poration, PANDA RESTAURANT GROUP, INC. f/k/a PANDA MANAGEMENT COM- PANY, INC., a California corporation, CITADEL PANDA EXPRESS, INC., a Cali- fornia Corporation, ANDREW CHERNG, a California resident and citizen, and PEGGY CHERNG, a California resident and citizen. Defendants. SUPPLEMENTAL MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS SuppA 71 Case: 1:12-cv-09683 Document #: 49 Filed: 05/14/13 Page 2 of 9 PageID #:817 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (114 of 129) I. INTRODUCTION Pursuant to this Court’s April 30, 2013 Minute Entry, ECF No. 46, Defendants respect- fully submit this supplemental memorandum supporting the argument that PE Chicago has re- leased all of its claims relating to the transaction at issue in this lawsuit. In Sirazi v. Panda Exp., Inc., No. 08-cv-02345, PE Chicago asserted each and every one of the claims that Plaintiff now brings in this case. When PE Chicago settled the Sirazi case, it granted Defendants a broad and sweeping release that encompassed those claims and more, extending to any and all “disputes, claims, causes of action, [or] actions . . . arising from all matters, facts, events and circumstances relating to the Rezko-Citadel Partnership.” Dusseault Decl. ¶ 2, Ex. A at 4–5 (emphasis added). Each of the claims that Plaintiff now brings is derivative of PE Chicago’s claims, has been re- leased, and must be dismissed. See Metro. Life Ins. v. Tremont Grp. Holdings, Inc., 2012 WL 6632681, at *8 (Del. Ch. Dec. 20, 2012) (claim is derivative where, as here, the injury alleged “falls directly on the business entity as a whole and only secondarily on individual investors”).1 Plaintiff also argues that “Judge Kennelly previously ruled that PE Chicago could not as- sert any of the claims that the Plaintiff is pursuing in this case.” ECF No. 38 at 8. This incom- plete and misleading characterization of Judge Kennelly’s prior rulings does nothing to save Plaintiff from dismissal of her claims here. Judge Kennelly did not rule that PE Chicago “could not assert” these claims in the sense that it lacked standing or was attempting to assert a claim that belonged to another party, such as Plaintiff. Judge Kennelly ruled that each claim failed on its merits. Plaintiff has no more right to reassert PE Chicago’s meritless, released claims on a derivative basis than she would have to reassert its meritorious, released claims on a derivative 1 Defendants would be entitled to dismissal even if PE Chicago had not settled and released its claims for the additional, independent reasons set forth in the moving papers, including Plaintiff’s failure to make the statutorily required demand on PE Chicago and her failure to bring her claims within the applicable statute of limitations. See ECF No. 23 at 9–14. 1 SuppA 72 Case: 1:12-cv-09683 Document #: 49 Filed: 05/14/13 Page 3 of 9 PageID #:818 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (115 of 129) basis. See 19 Am. Jur. 2d Corporations § 1949 (“any bar to an action by the corporation is also a bar to a derivative action by the stockholder.”). II. ARGUMENT A. PE Chicago Brought the Same Claims in Sirazi that Plaintiff brings here. In its First Amended Complaint in the Sirazi action, PE Chicago asserted each and every one of the six claims that Plaintiff now seeks to bring in this action: unjust enrichment (Count I), fraud (Count II), conspiracy to defraud (Count III), aiding and abetting a breach of fiduciary duty (Count IV), and violations of the Illinois Uniform Fraudulent Transfer Act (Counts V and VI). Compare ECF No. 1, with Sirazi v. Panda Exp., No. 08-cv-02345, ECF No. 120. Indeed, the factual bases for each claim are virtually identical, and Plaintiff’s factual allegations only serve to highlight that she is bringing derivative claims that relate to the Rezko-Citadel partnership and are based on harm allegedly done to PE Chicago: Claims Asserted by Basis for Claims Asserted by Basis for Claims Asserted by Massuda and PE Chicago2 Massuda (all emphases added) PE Chicago Count I: Unjust Enrichment “Defendants took advantage of “Panda Express took advantage the circumstances that Tony of the circumstances that Tony Rezko was in with regard to Rezko was in with regard to his his distressed financial situa- distressed financial situation tion and extensive legal trou- and extensive legal troubles to bles to purchase PE Chicago’s purchase PE Chicago’s interest interest in Rezko-Citadel at a in Rezko-Citadel at a price well price well below its fair val- below its fair value.” (Compl. ue.” (Compl. ¶ 39.) ¶ 48.) Count II: Fraud “Plaintiff alleges that Defend- “Plaintiffs allege that Defend- ants intentionally defrauded ants intentionally defrauded Si- Dr. Massuda, PE Chicago and razi, PE Chicago and Enterpris- Enterprises out of the fair mar- es out of the fair market value ket value of PE Chicago’s of PE Chicago’s 50% interest in 50% interest in the Rezko- the Rezko-Citadel partnership.” 2 In counts VII and VIII of its complaint, PE Chicago asserted claims for breach of contract and breach of fiduciary duty that Plaintiff does not allege here. See Sirazi, ECF No. 120 at 28–30. 2 SuppA 73 Case: 1:12-cv-09683 Document #: 49 Filed: 05/14/13 Page 4 of 9 PageID #:819 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (116 of 129) Citadel partnership.” (Compl. (Compl. ¶ 55.) ¶ 46.) Count III: Conspiracy to “At a time specifically un- “At a time specifically unknown Defraud known to Plaintiff, but on in- to Plaintiffs, but on information formation and belief around and belief around May-June of May of 2006, Defendants and 2006, Defendants and Tony Tony Rezko entered into an Rezko entered into an agree- agreement and conspiracy to ment and conspiracy to defraud defraud PE Chicago and En- PE Chicago and Enterprises, terprises, and those with inter- and -those with interests in PE ests in PE Chicago and Enter- Chicago and Enterprises, of the prises, of the fair value of their fair value of their interest in the interest in the Rezko-Citadel Rezko-Citadel partnership.” partnership.” (Compl. ¶ 56.) (Compl. ¶ 65.) Count IV: Aiding and Abet- “Defendants knowingly partic- “Defendants knowingly partici- ting a Breach of Fiduciary ipated, assisted in, and benefit- pated, assisted in, and benefited Duty ed from, Tony Rezko’s from, Tony Rezko’s . . . breach- breaches of his fiduciary du- es of [his] fiduciary duties.” ties.” (Compl. ¶ 68.) (Compl. ¶ 77.) Count V: Violation of Illi- “The transfer of PE Chicago’s “The transfer of PE Chicago’s nois Uniform Fraudulent 50% interest in Rezko-Citadel 50% interest in Rezko-Citadel Transfer Act—Actual Fraud was made with the actual in- was made with the actual intent tent to delay, hinder, and/or to delay, hinder, and/or defraud defraud PE Chicago and PE PE Chicago and PE Chicago’s Chicago’s and Enterprises’ and Enterprises’ creditors, in- creditors, including Dr. Mas- cluding Sirazi.” (Compl. ¶ 80.) suda.” (Compl. ¶ 71.) Count VI: Violation of Illi- “Panda Express did not pro- “Panda Express did not provide nois Uniform Fraudulent vide PE Chicago or Enterpris- PE Chicago or Enterprises with Transfer Act—Constructive es with a reasonably equivalent a reasonably equivalent value, Fraud value, as defined in 740 ILCS as defined in 740 ILCS I60/4(a), 160/4(a), in exchange for the in exchange for the transfer of transfer of PE Chicago’s 50% PE Chicago’s 50% interest in interest in the Rezko-Citadel the Rezko-Citadel partnership.” partnership.” (Compl. ¶ 87.) (Compl. ¶ 94.) B. PE Chicago’s Release of Liability Encompasses the Claims Advanced by Plaintiff. On October 19, 2012, PE Chicago entered into a General Release and Settlement Agree- ment with Defendants resolving the Sirazi matter. Section A of the Recitals to the Settlement Agreement identified the claims that PE Chicago had asserted in that matter: “unjust enrich- 3 SuppA 74 Case: 1:12-cv-09683 Document #: 49 Filed: 05/14/13 Page 5 of 9 PageID #:820 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (117 of 129) ment, fraud, civil conspiracy, breach of fiduciary duty, breach of contract, . . . and violations of the Illinois Fraudulent Transfer Act . . . based upon the transfer of PE Chicago’s 50% interest in the Rezko-Citadel Partnership in June 2006.” Dusseault Decl. ¶ 2, Ex. A at 1. In Section 2.1 of the Settlement Agreement, PE Chicago “compromise[d] and settle[d]” each of these claims, and “agree[d] that this Settlement Agreement shall constitute a bar to [its] making any Claims, in- cluding filing of any other action related to or arising under the Rezko-Citadel Partnership at any time or for any reason.” Id. at 3 (emphasis added). Further, in Section 4.1 of the Settlement Agreement, PE Chicago agreed to “release, relieve, waive, relinquish and discharge Defendants” from any and all “disputes, claims, causes of action, [or] actions . . . arising from all matters, facts, events and circumstances relating to the Rezko-Citadel Partnership[.]” Id. at 4–5. It is beyond dispute that the claims Plaintiff seeks to pursue in this action “relat[e] to” the Rezko-Citadel Partnership. Indeed, Plaintiff refers to the Rezko-Citadel partnership 34 times in her Complaint, and all of her claims are founded on the purchase of PE Chicago’s partnership interest. Those claims fit squarely within the scope of the release granted by PE Chicago.3 C. Judge Kennelly’s Dismissal of PE Chicago’s Claims Is in No Way Inconsistent with Dismissal of the Derivative Claims Here. 1. The Court Rejected PE Chicago’s Claims on Their Merits, Not Because They Belonged to Another Party. Plaintiff argues that she can re-litigate the very same claims that PE Chicago brought and released in Sirazi because “Judge Kennelly previously ruled that PE Chicago could not assert any of the claims that the Plaintiff is pursuing in this case.” ECF 38 at 8. Plaintiff is wrong. To the extent she was hoping to create the misimpression that Judge Kennelly dismissed PE Chicago’s 3 That the release does not expressly reference investors is irrelevant. PE Chicago released its claims, and an indirect investor like Plaintiff cannot bring PE Chicago’s released claims derivatively. 4 SuppA 75 Case: 1:12-cv-09683 Document #: 49 Filed: 05/14/13 Page 6 of 9 PageID #:821 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (118 of 129) claims for lack of standing or because those claims belonged to another party, such as Plaintiff, her position is belied by Judge Kennelly’s actual holdings (which Plaintiff chose not to detail in her papers). Judge Kennelly rejected PE Chicago’s claims on the merits: Unjust Enrichment. Although the court denied summary judgment for defendants on PE Chicago’s unjust enrichment claim, the court later granted judgment as a matter of law for de- fendants on that claim. The court concluded there was “no evidence to support” PE Chicago’s theory—repeated by Plaintiff here—that PE Chicago was somehow deprived of distributions it was supposedly due. Sirazi, Trans. at 1390:2–1391:6 (attached as Exh. A); Compl. ¶ 41.4 Fraud. PE Chicago asserted two bases for its fraud claim against Defendants: first, “that the defendants made false statements indicating that the price they were paying for PE Chicago’s interest in Rezko-Citadel was a fair one,” Sirazi, ECF No. 228 at 9; and second, “that defendants concealed the sale of PE Chicago’s interest in Rezko-Citadel,” id. at 10. The court rejected the claim based on false statements about fair market value because “PE Chicago was equally a partner in Rezko-Citadel and could have valued its interest” and “defendants did not owe PE Chicago a fiduciary duty at the time of the sale.” Id. The court rejected the claim based on con- cealment because PE Chicago “was a party to the transaction” and thus knew its terms. Id. at 12. Conspiracy to Defraud. Because the court granted summary judgment on PE Chicago’s fraud claim, it also granted summary judgment for Defendants on PE Chicago’s conspiracy to defraud claim. See Sirazi, ECF No. 227; ECF No. 228 at 9, 21. 4 The Sirazi court rejected a separate theory of unjust enrichment—not asserted by or applicable to Plaintiff in this case—“that Mr. Rezko . . . didn’t have the entitlement to sell the asset because he had no voting rights over Concessions because he had pledged them to the bank.” Sirazi, Trans. at 1391:7–11. The court concluded that that was not “an unjust enrichment claim that the plaintiffs in this case can make,” because that claim apparently belonged to the bank (if anyone). Id. at 1394:9– 12. 5 SuppA 76 Case: 1:12-cv-09683 Document #: 49 Filed: 05/14/13 Page 7 of 9 PageID #:822 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (119 of 129) Aiding and Abetting a Breach of Fiduciary Duty. Judgment was entered for Defendants on PE Chicago’s claim for aiding and abetting a breach of fiduciary duty. ECF No. 318. Alt- hough the docket reflects no written order explaining the court’s reason for dismissing this claim, there is no indication that it was for lack of standing or that Defendants sought dismissal on that basis. Fraudulent Transfer. The Sirazi court granted summary judgment for Defendants on PE Chicago’s fraudulent transfer claims. The court “assum[ed] PE Chicago may bring an actual fraudulent transfer claim,” but found that the “claim [was] time-barred.” Sirazi, ECF No. 228 at 28. PE Chicago had not “move[d] to amend the complaint to make its claim until July 22, 2010 and did not file the amended complaint until November 10, 2010”—more than four years after “[t]he sale of PE Chicago’s interest occurred on June 1, 2006.” Id. PE Chicago’s constructive fraudulent transfer claim was time-barred for the same reason. Id. at 29. 2. Judge Kennelly’s Rejection of PE Chicago’s Claims Does Not Mean that They Have Not Been Released Or that They Belong to Plaintiff. To the extent Plaintiff is arguing that dismissal of PE Chicago’s claims on their merits somehow entitles her to re-litigate those same claims derivatively, or that the expansive release to which PE Chicago agreed cannot extend to dismissed claims, that argument is specious. See ECF No. 38 at 8 (arguing that “Claims That Do Not ‘Exist’ To A Third-Party . . . Cannot Be Set- tled By Said Third-Party,” and insisting that because PE Chicago’s claims were rejected “PE Chicago could not release them to anyone”). First, the fact that PE Chicago’s claims failed on their merits in the district court does not mean that PE Chicago could not release them. PE Chicago was free to release these claims for whatever they were worth—and explicitly did so in the Settlement Agreement, with the advice of the same lawyers who represent Plaintiff here. 6 SuppA 77 Case: 1:12-cv-09683 Document #: 49 Filed: 05/14/13 Page 8 of 9 PageID #:823 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (120 of 129) Second, the Sirazi judgment had not become final at the time of the settlement, and PE Chicago challenged the dismissal and sought reinstatement of its dismissed claims in a post-trial motion pending at the time of settlement. Sirazi, ECF No. 344 at 10 (“Plaintiffs’ Unjust Enrich- ment Claims Should Be Reinstated.”); id. at 13 (“All of PE Chicago’s Claims That Were Dis- missed At Summary Judgment Should be Reinstated”); ECF No. 369 at 12 (“All of PE Chicago’s Claims Should Be Reinstated”). Third, the fact that PE Chicago’s claims failed does not give Plaintiff license to re-assert those flawed claims derivatively. See 19 Am. Jur. 2d Corporations § 1949 (“The plaintiffs in a derivative action are in no better or stronger position than the corporation itself would be had it instituted the action, and any bar to an action by the corporation is also a bar to a derivative ac- tion by the stockholder.”). PE Chicago’s claims—whether meritorious or meritless—have been brought, settled, and released by PE Chicago, and Plaintiff cannot bring them once again here. III. CONCLUSION For the reasons set forth above and for the independent reasons set forth in Defendants’ moving papers, this Court should dismiss Plaintiff’s claims. Respectfully submitted, PANDA EXPRESS, INC., PANDA RES- TAURANT GROUP, INC., CITADEL PANDA EXPRESS, INC., ANDREW CHERNG, and PEGGY CHERNG Dated: May 14, 2013 By:___/s/ Christopher D. Dusseault______One of Their Attorneys Michael Dockterman (IL Bar No. 3121675) Christopher D. Dusseault* William R. Lee (IL Bar No. 6280450) Theane Evangelis Kapur* Tanya H. Miari (IL Bar No. 6290224) GIBSON, DUNN & CRUTCHER LLP EDWARDS WILDMAN PALMER LLP 333 South Grand Avenue 225 West Wacker Drive, Suite 3000 Los Angeles, California 90071 Chicago, Illinois 60606 (213) 229-7000 (312) 201-2000 [email protected] * Admitted pro hac vice 7 SuppA 78 Case: 1:12-cv-09683 Document #: 49 Filed: 05/14/13 Page 9 of 9 PageID #:824 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (121 of 129) CERTIFICATE OF SERVICE I hereby certify that on May 14, 2013, I caused a copy of the foregoing SUPPLEMENTAL MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS together with EXHIBIT A thereto to be filed with the Clerk of the Court for the United States District Court, Northern District of Illinois, using the CM/ECF system, which will send notification of such filing to the all parties of record. ______/s/ Tanya H. Miari_____ AM 20072905.1 SuppA 79 Case: 1:12-cv-09683 Document #: 49-1 Filed: 05/14/13 Page 1 of 5 PageID #:825 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (122 of 129) EXHIBIT A SuppA 80 Case: 1:12-cv-09683 Document #: 49-1 Filed: 05/14/13 Page 2 of 5 PageID #:826 1152 Case: 13-2818 Document: 115023-2 Filed: 11/12/2013 Pages: 89 (123 of 129) then there is like 20 minutes left of the tape. IN THE UNITED STAlES DISTRICT COURT 2 THE COURT: Okay. In other words, interrupt the dep, NORTHERN DISTRICT OF ILLINOIS 2 EASlERN DIVISION 3 do him at 1 :30, go back to the dep. 3 4 MR. MARCONI: Yes, if that's okay with you. 4 SEMIR D. SIRAZI, et al. , 5 THE COURT: I don't have a problem with that. 5 Plaintiffs, Docket No. 08 C 2345 6 vs. 6 MR. GRABEMANN: And Mr. Valenti would still be first. 7 PANDA EXPRESS, INC., et al., Chicago, Illinois 7 THE COURT: He's still first. April 16, 2012 8 Defendants. 9:00 a.m. 8 MR. MARCONI: He's first, and then we have a very 9 VOLUME 6 9 short, maybe a minute, minute and a half, of Davin that we 10 TRANSCRIPT OF PROCEEDINGS BEFORE THE HONORABLE MATTHEW F . KENNELLY AND A JURY 10 somehow forget to put in the first part. It's very short. 11 1 2 APPEARANCES: 11 THE COURT: Okay. What dep of whom? 13 12 MR. MARCONI: Davin. For the Plaintiff: DASPIN & AUMENT 14 BY: MR. ROBERT S. GRABEMANN 13 THE COURT: Oh, Davin. You're still doing Davin's MR. TIMOTHY M. SCHAUM 15 227 West Monroe Street, Sui te 3500 14 deposition? This is like the fourth try, or is it the third? Chi cago, III i noi s 60601 16 15 MR. GRABEMANN: And we have an objection to that. 17 For the Defendant: JOHNSON & BELL, LTO . BY: MR. JOSEPH R. MARCONI 16 THE COURT: Tell me what it is. I will just deal 18 MR. VICTOR J. PIOLl 33 West Monroe Street, Sui te 2700 19 Chicago, Illinois 60603 17 with it now because we have a few minutes. 20 18 Augie, why don't you see if they're here. 21 19 MR. GRABEMANN: We had designations and 22 20 counterdesignations for Mr. Davin. We saw him last week. We 23 21 got this yesterday. They want to play another clip. You 24 LAURA M. BRENNAN - Official Court Reporter 219 South Dearborn Street - Room 2102 22 know, everybody has had their shot with this, with him, and, 25 Chicallo, Illinois 60604 (312) 435-5785 23 you know, we haven't had any chance to go in and counter to 24 what they seek -- 25 THE COURT: Here is what I would suggest. What I -1 1151 1153 (The following proceedings were had out of the presence would suggest is that -- 2 and hearing of the jury:) 2 I'm going to let them do it, okay. I mean, it's, THE CLERK: 08 C 2345, 5irazi v. Panda Express. 3 quote, unquote, their case. So what I would suggest is that 4 THE COURT: Can I get the lawyers' appearances for 4 you go back in there over the lunch hour, see if there's 5 the record, please? 5 anything that you want to counterdesignate, and then we'll try 6 MR. SCHAUM: Your Honor, Tim Schaum for plaintiffs. 6 to do it all at once. 7 MR. GRABEMANN: Robert Grabemann, also for plaintiffs 7 So aside from Mr. Valenti, Rezko's depOSition, this 8 March. 8 little clip of Davin and the expert, what else is there? 9 MR. MARCONI: Joe Marconi and Victor Pioli for the 9 That's it. So we are going to finish the evidence today, it 10 defendants. 10 seem s like. 11 THE COURT: Okay. So what's next up in terms of 11 MR. PIOL!: Judge, we're going to put up the 12 witnesses? We're going to -- 12 affidavit of Mr. 5irazi, as I mentioned. 13 Do you have Mr. Valenti here, or no? 13 THE COURT: Just make sure you've gone over what you're going to do. l:: ~:~ ::~::~A:oN~e~reeS'g:~~: ~::::~:ei~h Mr. Valenti :: MR. GRABEMANN: Then we have-- 16 first, and then you've got your jury expert. 16 THE COURT: You know, we had sort of put the pause j 17 MR. MARCONI: I think we're going to put the Rezko 17 button on financial condition evidence, and I think we were I 18 tape on. He didn't get in until this morning because of the 18 going to come back to that at some point in time. I don't 19 weather yesterday. So we're kind of -- 19 know if you have already gotten in what you need to. I mean, 20 THE COURT' Oh late in the day So he was flying in 20 there was something that came in another way, but just I 21 late when it was dOi~9 fU~ny stuff. . 21 remember about that. I 22 MR. MARCONI: Yes, in the afternoon. 22 MR. GRABEMANN: I think we're probably okay on that. 23 THE COURT: Yes, okay. 23 Then we have a rebuttal witness. I 24 MR. MARCONI: So we're going to put the Rezko tape on 24 THE COURT: Which is going to be whom? iL'~2~5~~a~n~d~t~h~e~n~m~a~y~b~e~,_i_f_w~e~c~a_n~,_t~h_e~n_p~u_t_o_u__ r_e~x~p_e_r_t_a_t __ l_:_3_0~, __ a_n_d ______~_2=5=-~~~~ __M_R_. __ G_R_A __ B_E_M __ A_N __ N_: ___ M_r_._G __ e_r_tz __ a_g~a_in~.~~~~~~-=~~~ 1 of 12 sheets Page 1150 to 1153 of 1195 04/16/201201:23:59 PM SuppA 81 Case: 1:12-cv-09683 Document #: 49-1 Filed: 05/14/13 Page 3 of 5 PageID #:827 1388 Case: 13-2818 Document:1387 23-2 Filed: 11/12/2013 Pages: 89 (124 of 129) 1 note. 1 THE COURT: Got it. That's the counterclaim. 2 THE COURT: Okay. So let me make sure I've got it. 2 MR. SCHAUM: Right. 'fo the bank was supposed to get paid out from the business. 3 THE COURT: Ah. ' ..' MR. SCHAUM: Yes. 4 MR. MARCONI: Which they -- 5 THE COURT: It wasn't. And, therefore, Mr. Sirazi 5 THE COURT: Hang on a second. I'm just taking a . 6 got stuck on -- or was it Mr. Sirazi that got stuck or one of 6 note. 7 the entities that got stuck? 7 Go ahead. 8 MR. SCHAUM: PE Chicago. 8 MR. MARCONI: Which they filed a motion in limine to 9 THE COURT: PE Chicago got stuck on the note. 9 keep out of this case, and you granted. 10 MR. SCHAUM: Right. 10 MR. SCHAUM: Well, the exhibits are in. 11 THE COURT: The MB Financial note. 11 THE COURT: Well, no, I understand that. No, what I 12 MR. SCHAUM: Right. 12 was asked to keep out of the case was the fact that you guys 13 THE COURT: And then just remind me what ended up 13 got a judgment on it. But is there evidence in the case that 14 happening -- what's the harm as a result of that? Who has to 14 Mr. Sirazi -- there's not evidence in the case that Mr. Sirazi 15 pay what and how does it hurt -- 15 got stuck on it because you did ask me to keep it out of the 16 MR. SCHAUM: We have to pay. We've got a note 16 case. So how would the jury be able to decide this claim? 17 against us for 825 when that debt should have been paid off, 17 MR. SCHAUM: Well, I think it goes to essentially 18 years ago. 18 what should have gone to PE Chicago to get rid of that debt. 19 THE COURT: Okay. All right. And I'm not 19 THE COURT: I understand that, but I just want to put 20 disagreeing with you, but there's a lot of -- a lot of 20 this in a more practical context. You're standing up there in 21 evidence has come in, and there's evidence that Mr. Sirazi or 21 front of the jury. You're explaining the unjust enrichment 22 somebody on his behalf ended up having to pay the note. 22 claim, or at least this part of it. And you're saying, okay, 23 MR. SCHAUM: They -- when MB foreclosed, Panda took 23 here's what happened. You didn't get distributions. The bank 24 them out, and that's the judgment they have against us, for 24 didn't get distributions. Therefore, PE Chicago got stuck on .. that amount. 25 the note. And then you're going to have to stop right there . } 1389 1390 1 because you're not going to be able to go on to the next step 1 one. I'm sorry. 2 and say, and we then got sued for it and had to pay it, 2 THE COURT: Basically the theory is, this part of the 3 because you asked me to keep that out of the case. So how is 3 unjust enrichment, the theory is no, it's not our contract, 4 the jury even going to understand this claim in this form? 4 it's not our partnership agreement, it's the contract with MB 5 MR. GRABEMANN: I've got another. 5 Financial that -- and that we got, we being the plaintiffs in 6 THE COURT: I want to do one point at a time. I 6 the case, namely, PE Chicago -- 7 really do. I mean, it's important just in terms of organizing 7 MR. SCHAUM: Right. 8 the thinking on this. 8 THE COURT: -- not really Mr. Sirazi, but PE Chicago 9 So how do I get there? I mean, you're asking me to 9 got stuck on this note because Mr. Rezko didn't do what he was 10 instruct the jury on a claim that you really can't even 10 supposed to do in distributing money. Okay. 11 explain to them. 11 So there is no evidence in the case that you got 12 MR. MARCONI: The other part of it is - 12 stuck on the note. The evidence in the case is, and the only 13 THE COURT: I'm not to you yet on this. 13 evidence on this is that Panda Express paid the note. We 14 MR. GRABEMANN: Well, I think also we talked about 14 don't have anything about Panda Express sticking that to PE . 15 the contract and the distributions, but as to Mr. Sirazi on 15 Chicago because I was asked to keep it out of the case and 16 the unjust enrichment, what happened is, and I think the 16 agreed with you. 17 evidence is clear, is Panda would lend money to Rezko, Panda 17 MR. SCHAUM: Your Honor, hindsight is always 20/20, 18 would lend money to Papa John's, and then Rezko, operating, 18 but on the unjust enrichment, here's the issue: There is 19 you know, these various entities, would stick the debt on PE 19 evidence in the case that millions of dollars of distributions ? ....J .. Chicago. So at the end of the day when the transaction 20 each year went to payoff Panda's note and interest. I mean, ~'. occurred, $6 million is paid to Panda for loans it made to 21 it's five million in interest. That email came in. If the 22 Tony personally, loans it made to -- 22 distributions had gone as they were supposed to, we would have 23 THE COURT: Respectfully, Mr. Grabemann, I want to 23 no debt with the bank and the members of Enterprises would be 24 stick on what we're talking about here. 24 paid according to their interest. 25 MR. GRABEMANN: All right. I was moving on to a new 25 THE COURT: Okay. I don't think you can get an 04/16/201208.45.42 PM Page 1387 to 1390 of 1395 SuppA 82 8 of 10 sheets Case: 1:12-cv-09683 Document #: 49-1 Filed: 05/14/13 Page 4 of 5 PageID #:828 1392 Case: 13-2818 Document:1391 23-2 Filed: 11/12/2013 Pages: 89 (125 of 129) 1 instruction on that part of your unjust enrichment theory 1 All right. Let me hear your arguments on that one. 2 because there's no evidence to support it. What I mean by 2 If it's a rescission claim, is it the kind of thing that the "'",that is there's no evidence that Panda Express was unjustly 3 jury would have to decide? Rescission is a form of equitable )enriched because the unjust enrichment consists of the fact 4 relief. 5 that they were able to put that note to you, and that's not in 5 MR. PIOLI: It's equitable remedy, Judge. - 6 the case at this point. 6 MR. MARCONI: But is that a remedy you can get under 7 So let's move to the second theory. The second basis 7 unjust enrichment? I never heard of that. 8 for the unjust enrichment claim is that Mr. Rezko couldn't 8 THE COURT: I don't know. 9 sell the asset, he didn't have the entitlement to sell the 9 MR. SCHAUM: Yeah, absolutely. 10 asset because he had no voting rights over Concessions because 10 MR. MARCONI: The other thing is, Judge, they're 11 he had pledged them to the bank. Okay. So let's assume -- 11 saying that he didn't have the authority. Who was running the 12 and, I mean, I grant you that that is different from the other 12 company? 13 theories. It's different from the other claims. So it's not 13 THE COURT: I mean, I don't think they said he didn't 14 within the language of the Cleary case that it rises or falls 14 sell the asset. I think they're saying that he couldn't 15 with the other claims. So let's sort of talk that through 15 properly sell the asset. I mean, all sorts of people do 16 where it gets you. 16 things that they can't properly do. If that weren't the case, 17 How does that mean that the defendants were unjustly 17 Mr. Rezko would not have been appearing by video. Okay. He 18 enriched? And I'm not disagreeing with you. I just want to 18 did all sorts of things in other contexts that he couldn't 19 get the theory articulated here. 19 properly do. 20 So if he couldn't sell the asset, that means what? 20 In fact, we would all be out of a job, or at least I 21 Basically this amounts to a rescission claim. Couldn't sell 21 would, half of my job. 22 it. Therefore, we have to unwind the sale. Everybody turns 22 MR. MARCONI: And isn't that the bank's claim? I 23 back over whatever there was and so on. Right? 23 mean-- 24. MR. SCHAUM: Yes. 24 THE COURT: Well, so that's really the question, I ;r,\ THE COURT: Okay. It's a rescission claim. 25 think. That to me is the question that comes to mind, is how ) 1393 1394 1 is this your claim as opposed to somebody else's claim? You 1 Mr. Sirazi's interests were subordinate to the bank. He was 2 still have to have standing. And so how does this end up 2 next in line. That's the pOint. Once the bank is paid off, 3 being the plaintiff's claim in this case? 3 he comes -- 4 MR. SCHAUM: Well, it is PE Chicago, and it is 4 MR. MARCONI: No. Panda was next in line. 5 Mr. Sirazi both have the unjust enrichment claim, so I think 5 MR. SCHAUM: No. Panda got paid off on its debt. 6 and that's what -- PE Chicago has essentially pledged its 6 That was the whole -- 7 interest in violation of MB Financial's. So what happens is, 7 MR. MARCONI: So it went to a creditor. I don't 8 is Mr. Rezko acts ultra vires and sells it and gets his money. 8 understand the theory, Judge. 9 MR. MARCONI: Ultra vires. I mean, he was running 9 THE COURT: I don't think that's an unjust enrichment 10 the company. I don't understand how pledging the stock 10 claim that the plaintiffs in this case can make. So what this 11 prevents you from having the authority to act for the 11 amounts to is I'm granting the Rule 50 -- a Rule 50 motion on 12 corporation. 12 the unjust enrichment claim. 13 MR. SCHAUM: You can act for the corporation, but you 13 So the case is going to go to the jury on three 14 can't appear on the collateral, and he signed a resolution 14 claims. I'll have to do some renumbering and some rewording. 15 under the -- it's a resolution of the corporation, thereby 15 And I will get you a revised set of these things tonight. 16 terminating his rights to impair the collateral, the value of 16 What else does anybody need to talk about? And we're 17 the collateral, the stock. 17 really talking about now other than the thing I left open, 18 MR. PIOLI: It makes the transaction voidable, not 18 which is you hopefully giving me some other sort of a subset 19 VOid, and it would be up to the bank to assert their rights 19 list later tonight that these are the exhibits that we really 2")"under that agreement to void the transaction, which they 20 want in evidence and to go to the jury, those two things, in ~ idn't do. You heard Mr. Valenti. He got paid off. He was 21 my view, being coextensive. This is really a speak now or 22 happy. And that was the end of it. The bank relinquished its 22 forever hold your peace moment. So is there anything else? 23 rights at that point. So Mr. Sirazi doesn't have standing to 23 MR. GRABEMANN: Then I'll speak, if I may. And this 24 assert the bank's rights to come in and undo the transaction. 24 goes back to Page 13 of the instruction. 25 MR. SCHAUM: It wasn't just the bank's rights. 25 THE COURT: Yes. Page 13. 9 of 10 sheets Page 1391 to 1394 of 1395 SuppA04/16/201208:45:42 83 PM Case: 1:12-cv-09683 Document #: 49-1 Filed: 05/14/13 Page 5 of 5 PageID #:829 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 1510(126 of 129) 1 MR. PIOLI: Thank you, Judge. 2 THE COURT: The exhibits will be available in 3 chambers for you tomorrow. 4 MR. SCHAUM: Okay. 5 (Which were all the proceedings had in the above-entitled 6 cause on the days and dates aforesaid.) 7 8 9 CERTIFICATE 10 11 I hereby certify that the foregoing is a true and 12 correct transcript of the above-entitled matter. 13 14 15 /s/ Laura M. Brennan April 18, 2012 16 17 Laura M. Brennan 18 Official Court Reporter Date Northern District of Illinois 19 20 21 22 23 24 25 SuppA 84 Case: 1:12-cv-09683 Document #: 66 Filed: 07/23/13 Page 1 of 3 PageID #:905 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (127 of 129) IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION DR. FORTUNEE MASSUDA, an Illinois ) resident and citizen, ) ) Plaintiff, ) ) No. 12 CV 9683 v. ) ) PANDA EXPRESS, INC., a California ) Hon. Ronald A. Guzmán corporation, et al., ) ) Defendants. ) PLAINTIFF’S STATUS REPORT Plaintiff wishes to inform the Court as to how she intends to proceed in the case upon receiving the Court’s recent Memorandum Opinion. As to the remaining count of fraud, which was dismissed without prejudice, Plaintiff respectfully intends to stand on the allegations of the Complaint. Even though the parties are before the Court this Thursday, Plaintiff wanted as a courtesy to inform the Court and opposing counsel of this decision immediately. Respectfully submitted, DR. FORTUNEE MASSUDA Dated: July 23, 2013 By: /s/ Robert S. Grabemann One of Her Attorneys SuppA 85 Case: 1:12-cv-09683 Document #: 66 Filed: 07/23/13 Page 2 of 3 PageID #:906 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (128 of 129) Robert S. Grabemann Timothy M. Schaum DASPIN & AUMENT, LLP 227 West Monroe Street Suite 3500 Chicago, Illinois 60606 (312) 258-1600 -2- SuppA 86 Case: 1:12-cv-09683 Document #: 66 Filed: 07/23/13 Page 3 of 3 PageID #:907 Case: 13-2818 Document: 23-2 Filed: 11/12/2013 Pages: 89 (129 of 129) CERTIFICATE OF SERVICE The undersigned, an attorney, hereby certifies that he caused a copy of the foregoing PLAINTIFF’S STATUS REPORT via electronic service, on the 23rd day of July, 2013 on: Michael Dockertman William R. Lee Tanya H. Miari EDWARDS WILDMAN PALMER LLP 225 West Wacker Drive Suite 3000 Chicago, Illinois 60606 (312) 201-2000 Christopher D. Dusseault Theane Evangelis Kapur GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue Los Angeles, California 90071 (213) 229-7000 /s/ Robert S. Grabemann -3- SuppA 87