Cement-Lock v. Gas Technology Institute

• Decision Date: 08 November 2007
• Docket Number: No. 05 C 0018.,05 C 0018.
• Citation: 523 F.Supp.2d 827
• Parties: CEMENT-LOCK, an Illinois limited liability company, and Richard Mell, an individual, Plaintiffs, v. GAS TECHNOLOGY INSTITUTE, an Illinois corporation, Institute of Gas Technology, an Illinois corporation, Endesco Services, Inc., an Illinois corporation, Endesco Clean Harbors, LLC, an Illinois limited liability company, Stanley S. Borys, an individual, James E. Dunne, an individual, Francis S. Lau, an individual, Cement-Lock Group, LLC, a Delaware limited liability company and nominal defendant, Defendants.
• Court: U.S. District Court — Northern District of Illinois

523 F.Supp.2d 827

CEMENT-LOCK, an Illinois limited liability company, and Richard Mell, an individual, Plaintiffs, v. GAS TECHNOLOGY INSTITUTE, an Illinois corporation, Institute of Gas Technology, an Illinois corporation, Endesco Services, Inc., an Illinois corporation, Endesco Clean Harbors, LLC, an Illinois limited liability company, Stanley S. Borys, an individual, James E. Dunne, an individual, Francis S. Lau, an individual, Cement-Lock Group, LLC, a Delaware limited liability company and nominal defendant, Defendants.

No. 05 C 0018.

United States District Court, N.D. Illinois, Eastern Division.

November 8, 2007.

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Jerald P. Esrick, Chung-Han Lee, Elizabeth Mary Troy Kelley, Heather Elyse Nolan, James Phillip Dorr, Robert Loren Wagner, Wildman, Harrold, Allen & Dixon, Chicago, IL, for Plaintiffs.

Alexander S. Vesselinovitch, Daniel J. Polatsek, Gil M. Soffer, Katten, Muchin, Rosenman LLP, Joel David Bertocchi, Hinshaw & Culbertson LLP, J. Gregory Deis, United States Attorney's Office, Susan Bogart, Law Offices of Susan Bogart, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

REBECCA R. PALLMEYER, District Judge.

The "Cement-Lock" technology (hereinafter, "the Technology") at the heart of this litigation is a process by which contaminated wastes are used to make a decontaminated, beneficial cement additive. Cement-Lock Group, LLC ("CLG") was the owner of certain intellectual property and rights to the Cement-Lock Technology. This Technology, however, did not prove as profitable as its inventors hoped, and this lawsuit is the result. Plaintiffs Cement-Lock, LLC ("CL") and Richard Mell are Members of CLG who filed this derivative action on behalf of CLG, claiming that the Defendants' actions devalued CLG's intellectual property, harmed CLG's business reputation, and deprived CLG of opportunities to market and develop the Cement-Lock Technology. In their eleven-count Amended Complaint, Plaintiffs have named as Defendants a number of entities and individuals connected to the Cement-Lock Technology: Defendants Gas Technology Institute ("GTI"), Institute of Gas Technology ("IGT"), Endesco Services, Inc. ("ESI"), Endesco Clean Harbors, LLC ("ECH"), Stanley S. Borys, James E. Dunne, Francis S. Lau, and nominal defendant Cement-Lock Group, LLC ("CLG"). Defendants now move to for summary judgment on Counts I through VIII of that Complaint, which allege that each Defendant violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) & (d) (2000); committed common law breach of fiduciary duty, fraudulent concealment, fraudulent misrepresentation, and negligent misrepresentation; and seek to recover unjust enrichment and an accounting. For the reasons explained here, Defendants' motion is granted in part and denied in part.

BACKGROUND

I. The Parties

The Cement-Lock Technology is a process that takes contaminated wastes — such as dredged sediment — decontaminates those wastes and converts the wastes into a beneficial cement additive. (Pls.' Resp. to Lau's 56.1 ¶ 7.) CLG owns the intellectual property rights to that process, including patents, trademarks, and service marks. The parties to this action have played various roles in attempting to develop and commercialize the Technology. The Plaintiffs are CL and Mell (together, the "Plaintiffs"). CL is a limited liability company whose members include Surjit Randhava ("Serge"), Sarabjit Randhava, Richard Kao, Wayne & Associates, and Jinnet Hemani. (Pls.' Resp. to Corps.' 56.1 ¶ 5.)¹ Mell is a CLG Member as well as a Manager on CLG's Operating Board. (Pls.' Resp. to Lau's 56.1 ¶ 2.) At all relevant times, Mell was a Chicago Alderman. (Pls.' Resp. to Corps.' 56.1 ¶ 7.) Plaintiffs have brought this derivative action on behalf of nominal defendant CLG, a limited liability company, which ESI, CL, and Mell formed in 1997. (Id. ¶ 8.)

The Defendants in this action — GTI, IGT, ESI, ECH, Borys, Dunne, Lau, and CLG (together, the "Defendants") — are interrelated in significant ways. IGT is a not-for-profit entity based in Illinois that engages in natural gas research and related development projects. (Pls.' Resp. to Corps.' 56.1 ¶ 1.) Gas Research Institute ("GRI"), too, is a not-for-profit entity based in Illinois that engaged in natural gas research, and related development projects. (Id. ¶ 2.) GRI's principal source of funding was derived from a surcharge imposed by the Federal Energy Regulatory Commission ("FERC") on the transport of natural gas through interstate pipelines and then transmitted to GRI. (Id.) GRI also ran programs unrelated to FERC and, as part of these programs, awarded almost $2 million in funding relating to the Cement-Lock Technology to GTI and almost $500,000 in funding relating to the Technology to ECH. (Defs.' Answers to Pls.' Initial Interrogs. at No. 5, Pls.' Ex. 23.) According to Defendants, in April 2000, IGT and GRI combined their boards of directors and elected common officers; from that point forward GRI continued to operate as an entity, but IGT operates distinctly from it. (Id. at No. 10; see also Pls.' Resp. to Corps.' 56.1 ¶ 2.) IGT now operates under the name GTI. (Pls.' Resp. to Corps.' 56.1 ¶ 2.)² There is no further information in the records regarding the structure or purpose of this combination.

ESI is a wholly-owned subsidiary of IGT. (Id. ¶ 1.) ECH is a Delaware LLC with a stated mission to "design, construct, and operate a 100,000 ton cement manufacturing facility to process contaminated harbor sediment from the New York/New Jersey harbor area using the proprietary Cement — Lock Technology of the Institute of Gas Technology." (Id. ¶ 3.) GRI International, LLC and ESI own ECH, and. Plaintiffs contend that GRI holds debentures convertible to a 70% ownership interest in ECH. (Id.) Together, GTI, IGT, ESI, and ECH refer to themselves as the "Corporate Defendants."

The individual Defendants have served, variously, as officers or directors of the Corporate Defendants. Though Plaintiffs suggest that he held other titles as well, Borys served at least as Senior Vice President of IGT until September 1, 1998; then as Executive Vice President of IGT until November 10, 1999; and as Executive Vice President and Chief Operating Officer of IGT after that. (Corps.' 56.1 ¶ 10.) Borys also served on ESI's Board of Directors beginning on November 8, 1999 and as ESI's President except between August 10, 2000 and March 22, 2001. (Id.) Finally, he served on the CLG Board of Managers from December 1, 1997 until July 1, 2004 and again beginning on January 5, 2005. (Id.) Though Plaintiffs suggest that he held other titles as well, Dunne served at least as Vice President for Administration and Secretary of IGT between 1997 and June 15, 2000 and as Vice President for Administration and Chief Financial Officer of IGT from June 15, 2000 through 2005. (Id. ¶ 11.) He ran the administrative section of IGT, which included its contracts division. (Defs.' Resp. to Pls.' 56.1 ¶ 36.) After 2001, all CLG licenses were supposed to be prepared by GTI's legal or contracts department, each of which were part of Dunne's Administrative Division. (Id. ¶ 42.) Dunne also served on the CLG Board of Managers and as its Secretary from February 6, 2002 until July 1, 2004 and again beginning on January 5, 2005. (Pls.' Resp. to Corps.' 56.1 ¶11.) Though Plaintiffs suggest that he held other titles as well, Mr. Lau was at least the Managing Director of IGT from 1997 until June 15, 2000; its Director until June 1, 2001; its Associate Director until December 1, 2003; its Executive Director until April 1, 2005; and then its Director through 2005. (Id. ¶ 12.) Mr. Lau first served on the CLG Board of Managers from January 30, 2003 until July 1, 2004 and again beginning on January 5, 2005. (Id.) He was President of CLG between March 17, 2003 and July 1, 2004. (Id.)

In addition, several other individuals played a significant role in the various entities. S. Peter Barone was President of ECH and Vice President of ESI from February 2002 until January 2003; he also worked for GRI and/or GTI from 1981 until January 2003. (Pls' Resp. to Corps.' 56.1 ¶ 17.) Anthony Lee held the title of CLG President at IGT from February 2001 to January 2003; he was also an IGT employee from 1961 until January 2003 and was the project manager for certain Cement-Lock Technology subcontracts. (Id. ¶ 3.) Amirali Rehmat was a GTI employee and the ECH President from March 1999 through January 2002; he was also the project manager for certain Cement-Lock Technology related subcontracts. (Id. ¶ 15.) There is no dispute among the parties to this action that, acting together, Barone, Lee, and Rehmat perpetrated a fraud related to the Cement-Lock Technology (the "BLR Fraud"). (Pls.' Opp'n 1; Corps.' Mem. 6; Borys' Mem. 2; Lau's Mem. 3; Dunne's Mem. 2.) Plaintiffs define the BLR Fraud as the "fraudulent and criminal conduct of Barone, Lee and Rehmat," which they claim benefitted the officers and employees through increased salaries and bonuses. (Pls.' Resp. to Corps.' 56.1 ¶ 38.) The GTI management learned of the BLR Fraud in October 2002. (Resp. to Lau's 56.1 ¶ 44.) Soon thereafter, in late 2002, GTI began an investigation into the BLR Fraud. (Id. ¶ 45.) In late 2002, GTI notified the FBI of the BLR Fraud. (Id. ¶ 46.) That fraud is the subject of another civil lawsuit pending in this court: Gas Technology Institute v. Rehmat, No. 05 C 2712. In addition, Barone, Lee, and Rehmat, as well as Zulfikar Rehmat and Minazali Rehmat, were indicted on September 5, 2007. See Indictment at 1, United States v. Barone, No. 07 CR 0574 (N.D.Ill. Sept. 5, 2007).

II. ECH Licenses and Promissory Notes

Plaintiffs' allegations against the Defendants in this action largely revolve around various licenses from CLG to ECH of the right to practice the Cement-Lock Technology. On December 1, 1997, Borys, on behalf of...