Glen Flora Dental Ctr., Ltd. v. First Eagle Bank, Case No. 17-cv-9161

• Citation: 487 F.Supp.3d 722
• Decision Date: 17 September 2020
• Docket Number: Case No. 17-cv-9161
• Parties: GLEN FLORA DENTAL CENTER, LTD., et al., Plaintiffs, v. FIRST EAGLE BANK, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

487 F.Supp.3d 722

GLEN FLORA DENTAL CENTER, LTD., et al., Plaintiffs,

v.FIRST EAGLE BANK, et al., Defendants.

Case No. 17-cv-9161

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

Signed September 17, 2020

Alexander Albert Michael, Ettinger & Besbekos P.C., Palos Heights, IL, Andrew D. Finke, James G. Vanzant, Blaine & Vanzant LLP, Evanston, IL, Dennis Alan Berkson, Dennis A. Berkson & Associates, Ltd., John C. Ellis, Justin DeLuca, Robert Steven Seer, Samantha Ditore, Ellis Legal P.C., Chicago, IL, Michael D. Ettinger, Ettinger and Besbekos, P.C., Palos Hills, IL, for Plaintiffs.

SLD Dental, Ltd., d/b/a Silver Lake Dental, Ltd., pro se.

Chris C. Gair, Kristi Lynn Nelson, Ryan P. Laurie, Thomas Reynolds Heisler, James Leighton O'Connell-Miller, Gair Eberhard Nelson Dedinas Ltd., Margaret Catherine O'Connor, Roger Andrew Lewis, Steven A. Levy, William Kyle Walther, Kerry Donovan Nelson, Goldberg Kohn Ltd., Chicago, IL, for Defendant First Eagle Bank.

Adeena Joele Weiss, Erick Ivan Lopez, Weiss Ortiz PC, Chicago, IL, for Defendant Larry Kelliher.

Christopher Niewoehner, Jeremy Steven Goldkind, Julie Courtland Michalski, Steptoe & Johnson LLP, Chicago, IL, for Defendant Mikki Francione.

James E. Dahl, Christopher J. Miller, Dahl & Bonadies LLC, Chicago, IL, for Defendant Lenny Vihnanek.

Larry Kelliher, LaGrange, IL, pro se.

MEMORANDUM OPINION AND ORDER

John Robert Blakey, United States District Judge

Plaintiffs—five dental practices and their common management company, Dental Practice Development (DPD)—sue two of their former managers, Defendants Larry Kelliher and Lenny Vihnanek, alleging that they conspired with Defendant First Eagle Bank and one of its agents, Mikki Francione, to defraud the practices out of more than $4 million. [77] at ¶ 2. Plaintiffs asserted claims against Defendants for violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act, 18 U.S.C. § 1961, et seq. (Count I), and conspiracy to violate the RICO Act (Count II–V).

[77] at ¶¶ 229–78. Plaintiffs also asserted state-law claims for breach of fiduciary duty (Count VI), conversion (Count VII), and breach of the Illinois Fiduciary Obligation Act (IFOA), 60 ILCS 65/8 (Count VIII). Id. at ¶¶ 279–314.

After Defendants moved to dismiss these claims, this Court issued an opinion granting in part and denying in part First Eagle's and Francione's motions and denying Kelliher's and Vihnanek's motions. [116]. As a result, the RICO claim (as to Kelliher and Vihnanek) and RICO conspiracy allegations (as to all Defendants) proceeded. Id. at 11, 16. The claims for breach of fiduciary duty and conversion also proceeded (as to Kelliher and Vihnanek), along with breach of the IFOA (as to First Eagle and Francione). Id. at 18–21.

Defendants then answered and asserted several amended affirmative defenses to Plaintiffs’ first amended complaint, [162] [163] [164] [165], all of which Plaintiffs now move to strike under Federal Rule of Civil Procedure 12(f), [166] [167] [168] [169]. For the reasons explained below, this Court grants in part and denies in part Plaintiffs’ motions. The Court also resolves a pending motion for clarification [243] below.

I. Background

A. First Amended Complaint

This Court presumes familiarity with the first amended complaint's allegations, as discussed in its prior opinion on Defendants’ motions to dismiss, see [116], and thus only briefly revisits those facts to provide context to its analysis on Plaintiffs’ motions to strike.

Plaintiffs comprise five related dental practices in the Chicago area and their management service, DPD. [77] at ¶¶ 7–12, 17. Defendant Vihnanek served as DPD's President from 1995 to 2012. Id. at ¶ 16. Defendant Kelliher, a friend of Vihnanek, held numerous executive positions in DPD, including Chief Financial Officer and ultimately President. Id. at ¶ 15. In these positions, Vihnanek and Kelliher controlled the management and operation of DPD, including its bank account and bank transactions for each of the practices. Id. at ¶ 39. Kelliher also handled bookkeeping duties and served as a signatory on the accounts of DPD and the practices. Id. at ¶¶ 40–42.

Plaintiffs assert that Defendants Kelliher and Vihnanek hatched a scheme to steal money from Plaintiffs and executed the scheme by diverting money from Plaintiffs’ accounts. Id. at ¶¶ 1, 45–49. Plaintiffs also claim that Kelliher and Vihnanek enlisted the help of Defendant Francione, Vihnanek's sister-in-law and an employee of First Eagle, to "conceal the cash-flow problems caused by the diversion of funds and prevent it from being discovered." Id. at ¶¶ 45–49, 57–58.

Plaintiffs claim that between January 2010 and June 2016, as a result of the alleged coordination between the four Defendants, Kelliher and Vihnanek diverted an estimated $4,427,117.27 from Plaintiffs to themselves, their families, and their personal creditors, via roughly 4,000 separate transactions. Id. at ¶¶ 48, 125, 237. The alleged scheme frequently overdrew the bank accounts, which resulted in legitimate bills of the Practices going unpaid due to insufficient funds (NSF). Id. at ¶¶ 50–52. To conceal such problems, Kelliher coordinated with Francione almost daily between January 2010 and June 2016 about which checks from Plaintiffs First Eagle should honor. Id. at ¶¶ 59–61. In furtherance of the alleged scheme, Plaintiffs claim that Francione "carried out" Kelliher's "instructions" and deliberately stopped payment on the practices’ legitimate bills to pay Vihnanek's and Kelliher's personal financial obligations. Id. at ¶¶ 61, 66. Any time a transaction resulted in an account overdraft, First Eagle automatically charged Plaintiffs an overdraft/NSF fee pursuant to standard protocol. Id. at ¶¶ 71, 74.

B. The Affirmative Defenses

1. Kelliher

Kelliher's amended answer asserts fourteen affirmative defenses. [165]. His first and second affirmative defenses assert that the statute of limitations has run on Counts I and II concerning the alleged RICO and RICO conspiracy violations and Counts VI and VII on Plaintiffs’ state law claims, respectively. Id. at 5–7.¹ Kelliher next asserts that in pari delicto (third affirmative defense), laches (fourth), equitable estoppel (fifth), consent (sixth), ratification (seventh), waiver (eight), failure to mitigate (nine), the doctrine of unclean hands (tenth), and ratification (fourteenth) bar Plaintiffs’ claims on all counts against him (Counts I, II, VI, VII). Id. at 7–14, 18. Kelliher also claims that lack of proximate causation (eleventh), contributory/comparative negligence (twelfth), and Plaintiffs’ own negligence (thirteenth) bar all counts against him. Id. at 14–17.

2. Vihnanek

Vihnanek asserts nine affirmative defenses to the FAC. [163]. Like Kelliher, Vihnanek's first and second affirmative defenses assert that the statute of limitations has run on the RICO and state-law counts, respectively. Id. at ¶¶ 40–56. Vihnanek next asserts that authorization/ratification (third affirmative defense), consent (fourth), failure to mitigate (fifth), laches (sixth), and the doctrine of unclean hands (seventh) bars all counts against him (Counts I, II, VI, and VII). Id. at ¶¶ 57–95. Vihnanek also asserts that intervening acts (eighth) and proximate cause (ninth) bar Plaintiffs’ state-law claims in Count VI and VII. Id. at ¶¶ 96–116.

3. First Eagle and Francione

Francione and First Eagle separately assert the same fourteen affirmative defenses. [162] [164]. Their third affirmative defenses claim that the IFOA bars Plaintiffs’ state-law claim in Count VIII. [164] at ¶¶ 40–41; [162] at ¶¶ 40–41. Concerning Counts IV and VIII (as to First Eagle) and Counts III and VIII (as to Francione), they also assert the following affirmative defenses: statute(s) of limitations as to Plaintiffs’ RICO conspiracy and state-law claims (first affirmative defense); the UCC (second); authorization/ratification (fourth); the doctrine of actual authority (fifth); the doctrine of apparent authority (sixth); the doctrine of consent (seventh); failure to mitigate damages (eighth); lack of proximate causation (ninth); intervening acts (tenth); waiver (eleventh); in pari delicto (twelfth); equitable estoppel (thirteenth); and breach of contract (fourteenth). [162] at ¶¶ 34–39, 42–77; [164] at ¶¶ 34–39, 42–77.

II. Legal Standard

Under Rule 12(f), this Court may strike a party's "insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f) ; Delta Consulting Grp., Inc. v. R. Randle Constr., Inc. , 554 F.3d 1133, 1141 (7th Cir. 2009). While motions to strike "are generally disfavored because of the likelihood that they may only serve to delay proceedings," when "striking portions of a pleading ‘remove[s] unnecessary clutter from the case,’ the motion may ‘serve to expedite, not delay.’ "

Naylor v. Streamwood Behavioral Health Sys., No. 11 C 50375, 2012 WL 5499441, at *7 (N.D. Ill. Nov. 13, 2012) (quoting Heller Fin. Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989) ).

An affirmative defense must satisfy three criteria to survive a motion to strike under Rule 12(f) : (1) it must be properly pleaded as an affirmative defense; (2) it must be adequately pleaded under Rules 8 and 9; and (3) it must withstand a Rule 12(b)(6) challenge. Hughes v. Napleton's Holdings, LLC , No. 15 C 50137, 2016 WL 6624224, at *2 (N.D. Ill. Nov. 9, 2016) ; Renalds v. S.R.G. Rest. Grp., 119 F. Supp. 2d 800, 802–03 (N.D. Ill. 2000).

III. Analysis of Affirmative Defenses

Plaintiffs move to strike all of Defendants’ amended affirmative defenses. [166] at 2; [167] at 2–4; [168] at 2–4; [169] at 3–9. This Court addresses each disputed affirmative defense below.

A. Statute of Limitations

1. RICO and RICO Conspiracy: All Defendants

Plaintiffs move to strike Kelliher's and Vihnanek's first affirmative defenses that the statute of limitations bars (in whole or in part) the RICO and RICO conspiracy counts, [166] at 3–4; [169] at 3–4, as well as First Eagle's and...