JF Enters., LLC v. Fifth Third Bank

• Decision Date: 15 November 2011
• Docket Number: No. 11 CV 3759.,11 CV 3759.
• Citation: 824 F.Supp.2d 818
• Parties: JF ENTERPRISES, LLC, Plaintiff, v. FIFTH THIRD BANK, Defendant.
• Court: U.S. District Court — Northern District of Illinois

824 F.Supp.2d 818

JF ENTERPRISES, LLC, Plaintiff,

v.FIFTH THIRD BANK, Defendant.

No. 11 CV 3759.

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

Nov. 15, 2011.

John L. Mullen, Nicholas P. Hillyard, Franke, Schultz & Mullen, Kansas City, MO, Jeffrey Daniel Javors, Chicago, IL, for Plaintiff.

G. Edgar James, Polsinelli Shughart P.C., Kansas City, MO, George Jackson, III, Paula S. Kim, Polsinelli Shughart P.C., Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

RUBEN CASTILLO, District Judge.

JF Enterprises, LLC, brings this diversity action against Fifth Third Bank, alleging state law claims for breach of the covenant of good faith and fair dealing, negligence, negligent misrepresentation, and fraudulent misrepresentation. (R. 1, Compl.) Presently before the Court are Fifth Third's motions to dismiss the fraudulent misrepresentation claim under Federal Rule of Civil Procedure 9(b), to strike JF Enterprises' jury trial demand, and for leave to file counterclaims and to join additional counterclaim defendants under Rules 13, 19 and 20. (R. 4, Fifth Third's Mot. Dismiss; R. 6, Fifth Third's Mot. Strike; R. 36 Fifth Third's Countercl. Mot.) For the reasons stated below, Fifth Third's motions are granted.

RELEVANT FACTS

JF Enterprises is a limited liability company doing business as a car dealer in Kansas City, Missouri. (R. 1, Compl. ¶ 1.) On or about December 7, 2005, JF Enterprises entered into a financing agreement with Fifth Third Bank to provide funds for the purchase of new and used vehicles at JF Enterprises' dealerships. ( Id. ¶ 6.)

Beginning in December 2008, a business dispute arose between the parties. ( Id. ¶ 14.) To resolve the dispute, the parties entered into a Settlement Agreement on April 20, 2009. ( Id. ¶ 21.) Under the terms of the Settlement Agreement, JF Enterprises acknowledged it and others (collectively referred to as “Borrowers”) owed Fifth Third $3,755,857.69. (R. 4, Fifth Third's Mot. Dismiss, Ex. 1, Settlement Agreement ¶ 2.) The Borrowers agreed to immediately pay $1.6 million and to execute a promissory note in the amount of $500,000. ( Id. ¶¶ 7–8.) Fifth Third agreed to extinguish $1,655,857.69 of debt. ( Id. ¶ 7.) Both parties released their respective claims. ( Id. ¶¶ 5–6.)

JF Enterprises alleges that it entered into a separate agreement with Fifth Third. (R. 1, Compl. ¶ 23.) This agreement required Fifth Third to allocate $604,302.36 in extinguished debt to JF Enterprises and the remaining amount to other Borrowers. ( Id.) JF Enterprises claims that its tax planning took into account this allocation of the debt extinguishment. ( Id. ¶ 25.) JF Enterprises claims that Fifth Third initially issued it a Form 1099–C, Cancellation of Debt, reflecting the agreed-to amount; however, Fifth Third then issued a second 1099–C allocating the full $1,655,857.69 to JF Enterprises. ( Id. ¶ 32.) JF Enterprises claims that this increase in income and the multiple 1099–Cs issued by Fifth Third caused it to be audited by the IRS and will cause it to sustain damages between $330,000 and $500,000. ( Id. ¶ ¶ 33–38.)

PROCEDURAL HISTORY

On March 3, 2011, JF Enterprises filed suit in the Western District of Missouri. (R. 1, Compl.) In its complaint, JF Enterprises presents four claims: (1) breach of the covenant of good faith and fair dealing; (2) negligence; (3) negligent misrepresentation; and (4) fraudulent misrepresentation. ( Id. ¶¶ 39–79.)

On March 5, 2011, Fifth Third filed two motions. First, Fifth Third filed a motion to dismiss for improper venue or, in the alternative, to dismiss the fraudulent misrepresentation claim. (R. 4, Fifth Third's Mot. Dismiss.) Second, Fifth Third filed a motion to strike JF Enterprises' jury trial demand. (R. 6, Fifth Third's Mot. Strike.) On May 31, 2011, Judge Ortrie Smith of the Western District of Missouri ruled on Fifth Third's motion to dismiss for improper venue and transferred the case to the Northern District of Illinois, leaving Fifth Third's motions to dismiss the fraudulent misrepresentation claim and to strike the jury demand pending. (R. 20, Order.) Fifth Third subsequently filed a motion for leave to file counterclaims against JF Enterprises and additional counterclaim defendants that it seeks to join on October 12, 2011. (R. 36, Fifth Third's Countercl. Mot.)

Now pending before the Court are Fifth Third's motions requesting the Court to dismiss the fraudulent misrepresentation claim for lack of particularity under Rule 9(b) or as contractually precluded, to strike JF Enterprises' jury trial demand as contractually precluded, and for leave to file counterclaims and to join counterclaim defendants. (R. 4, Fifth Third's Mot. Dismiss; R. 6, Fifth Third's Mot. Strike.; R. 36, Fifth Third's Countercl. Mot.) In support of its motion to dismiss the fraudulent misrepresentation claim, Fifth Third argues that JF Enterprises has failed to allege fraud with sufficient particularity. (R. 5, Fifth Third's Mot. Dismiss Mem. at 5.) Alternatively, Fifth Third argues that Count IV is contractually precluded by the integration clause of the Settlement Agreement. ( Id. at 6–8.) In support of its motion to strike JF Enterprises' jury trial demand, Fifth Third argues that it is contractually precluded by the Settlement Agreement's jury trial waiver clause. (R. 7, Fifth Third's Mot. Strike Mem.) Finally, Fifth Third requests the Court to grant it leave to file its proposed counterclaims because the counterclaims arise out of the same transaction or occurrence that is the subject matter of JF Enterprise's complaint, and to join the additional counterclaim defendants pursuant to Rules 13, 19, and 20 of the Federal Rules of Civil Procedure. (R. 36, Fifth Third's Countercl. Mot. at 4.)

LEGAL STANDARDS

A motion to dismiss pursuant to Rule 12(b)(6) “challenges the sufficiency of the complaint to state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir.2009). When reviewing a motion to dismiss, the Court accepts as true all factual allegations in the complaint and draws all reasonable inferences in the non-movant's favor. Id. Pursuant to Rule 8(a)(2), a complaint must contain “a ‘short and plain statement of the claim showing that the pleader is entitled to relief,’ sufficient to provide the defendant with ‘fair notice’ of the claim and its basis.” Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir.2008) (quoting Fed.R.Civ.P. 8(a)(2) and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “The allegations in the complaint must plausibly suggest that the plaintiff has a right to relief, raising that possibility above a speculative level; if they do not, the plaintiff pleads itself out of court.” George v. Nat'l Collegiate Athletic Ass'n, 613 F.3d 658 (7th Cir.2010) (quoting Equal Emp't Opportunity Comm'n v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir.2007)) (internal quotation marks omitted).

JF Enterprises' allegations of fraudulent misrepresentation trigger Rule 9(b) of the Federal Rules of Civil Procedure. Fed.R.Civ.P. 9(b). Rule 9(b) requires that a plaintiff alleging fraud plead the “circumstances constituting fraud” with particularity. Id. These circumstances include “the identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff.” Windy City Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., 536 F.3d 663, 668 (7th Cir.2008) (internal quotation marks and citations omitted). On a motion to dismiss under Rule 9(b), the Court accepts the plaintiffs' factual allegations as true, and draws all reasonable inferences in their favor. Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th Cir.2007). A court may consider materials outside of the pleadings when those materials are referred to in the complaint, concededly authentic, and central to the plaintiff's claim. Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir.2002).

ANALYSIS

I. Motion to dismiss Count IV

Fifth Third first argues that JF Enterprises' fraudulent misrepresentation claim should be dismissed for lack of particularity. (R. 5, Fifth Third's Mot. Dismiss Mem. at 4–5.) The elements of a cause of action for fraudulent misrepresentation are: (1) a false statement of material fact; (2) known or believed to be false by the party making it; (3) intent to induce the other party to act; (4) action by the other party in justifiable reliance on the truth of the statement; and (5) damage to the other party resulting from such reliance. Prime Leasing, Inc. v. Kendig, 332 Ill.App.3d 300, 265 Ill.Dec. 722, 773 N.E.2d 84, 94 (1st Dist.2002).¹ Under Rule 9(b), a party who alleges fraud or mistake “must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). While the exact substance of the particularity standard “may vary on the facts of a given case,” the requirement is often described as requiring the “who, what, when, where, and how of the fraud.” Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 441–42 (7th Cir.2011) (internal citations omitted). The particularity requirement is designed to protect the defendant against the stigmatic injury that comes with alleging fraud and to “discourage a sue first, ask questions later philosophy.” Id. at 441 (internal citations and quotation marks omitted).

JF Enterprises points to paragraphs 21 and 23 of the complaint in arguing that it meets the heightened pleading requirements of Rule 9(b). (R. 13, JF Enterprises' Mot. Dismiss Resp. at 9.) In the complaint, JF Enterprises alleges that in April of 2009 it entered into the Settlement Agreement and that it was “motivated to accept the terms of the Settlement Agreement because of an agreement” on how the extinguished debt would be allocated. (R. 1, Compl. ¶¶ 21, 23.)...