Joe Schroeder Legacy, LLC v. Serv. 247 of Ill., Inc.

• Decision Date: 10 February 2022
• Docket Number: 20 C 3201
• Parties: JOE SCHROEDER LEGACY, LLC, et al., Plaintiffs, v. SERVICE 247 of ILLINOIS, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

JOE SCHROEDER LEGACY, LLC, et al., Plaintiffs,
v.
SERVICE 247 of ILLINOIS, INC., et al., Defendants.

No. 20 C 3201

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

February 10, 2022

MEMORANDUM OPINION AND ORDER

Virginia M. Kendall, United States District Judge.

Plaintiffs Joe Schroeder Legacy, LLC, f/k/a DRYCO, LLC (“DRYCO”), Joseph Schroeder, Paul Matthews, and John Schroeder have brought claims against Defendants Thomas Keffer, Elizabeth Nelson, Nelson Group, Inc. d/b/a Claimplus, Service247 (together, the “Service247 Defendants”), and Hanson Law Group, LLP (“HLG”) alleging harm to Plaintiffs' business. (See Dkt. 79). Plaintiffs' Second Amended Complaint (“SAC”) brings federal claims under 18 U.S.C. §§ 1962(c)-(d) of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) as well as state law claims for conversion, civil conspiracy, inducement of breach of fiduciary duty, aiding and abetting breach of fiduciary duty, tortious interference with a contract, breach of fiduciary duty, professional negligence, and defamation. (Id. at ¶¶ 78-176). For the reasons discussed below, Defendants' Motions to Dismiss [87, 90] are granted as to the RICO claims, and the Court declines to grant supplemental jurisdiction over Defendants' remaining state law claims.

BACKGROUND

On a motion to dismiss under Rule 12(b)(6), the Court accepts the complaint's well-pleaded factual allegations, with all reasonable inferences drawn in the non-moving party's favor, but not its legal conclusions. See Smoke Shop, LLC v. United States, 761 F.3d 779, 785 (7th Cir. 2014).

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Unless otherwise noted, the following factual allegations are taken from Plaintiff's Second Amended Complaint, (Dkt. 79) and are assumed true for purposes of this motion. W. Bend Mut. Ins. Co. v. Schumacher, 844 F.3d 670, 675 (7th Cir. 2016).

The individual Plaintiffs, through their entity DRYCO, founded Specialty Contents Group, LLC (“SCG”) in 2015 which helps consumers and businesses restore personal property damaged by fires, floods, or similar calamities. (Dkt. 79 ¶ 3). Defendants Elizabeth Nelson and Thomas Keffer are the CEO and President, respectively, of Claimplus Corporation, a competitor of SCG. (Id. ¶ 4). Defendant David Foreman is an employee of SCG and was purportedly Nelson and Keffer's “inside man” at SCG. (Id.). Nelson and Keffer tried unsuccessfully to purchase SCG from DRYCO, and when that failed, they took over management of SCG with the help of Foreman and another individual, James Ko, who is co-owner of SCG. (Id.). From there, Defendants began the process of looting SCG of all its value and saddling SCG with unsustainable debts. (Id.). In furtherance of their scheme, Nelson and Keffer set up a series of companies to compete with SCG under the name “Service247, ” including Defendants Service247 of Illinois, Inc. and Service247 of Wisconsin, Inc. (together, “Service247”). (Id. ¶¶ 5-6). SCG retains counsel from Defendant HLG, but HLG allegedly actively and knowingly assisted Defendants in their raid of SCG to Plaintiffs' detriment. (Id. ¶ 7).

In 2015, DRYCO formed SCG with Ko, with DRYCO a 50% owner of SCG and Ko's entity called Countryside Cleaners, Inc. (“CCI”) owning the other half. (Id. ¶ 20). DRYCO contributed 100% of the start-up capital to SCG and provided a space for SCG to maintain its headquarters, although SGC was to re-pay DRYCO for these costs. (Id. ¶ 21). Defendants ensured that the obligation to DRYCO was never repaid and instead converted the assets and opportunities of SCG for their benefit by handing them to Service247. (Id.).

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In February 2017, DRYCO decided that the sole shareholder of CCI (the other Member of SCG), James Ko, would replace the original Manager of SCG, Burgess Watts. (Id. ¶ 24). Shortly thereafter, SCG began trending downward both operationally and financially. (Id.). Plaintiffs Joseph Schroeder and Paul Matthews advised Ko in June 2018 that he should no longer be the Manager of SCG and it was time that Ko and SCG part ways. (Id. ¶ 25). In response, Ko instead attempted to leverage powers he believed were granted him in the SCG Operating Agreement to intentionally injure DRYCO and SCG and to create business opportunities for himself and his Defendant co-conspirators. (Id.).

In August or September 2018, Keffer approached SCG about purchasing it. (Id. ¶ 27). DRYCO was not interested in selling its share, however, so Keffer turned to CCI. (Id.). In order to recruit Ko and Foreman into his plan to raid SCG, Keffer allegedly promised Ko and Foreman “something that looks like ownership” in the combined entities. (Id.). Keffer and Nelson quickly convinced Ko and Foreman to let them take over major management responsibilities at SCG and engage in various leadership activities. (Id. ¶ 28 (noting that Claimplus personnel began to hire, fire, and onboard SCG employees; administer SCG's health insurance plan; answer phones at SCG; perform IT duties; bookkeep; and process payroll information)). Since Keffer and Nelson took over management of SCG, SCG has left numerous creditors unpaid - including vendors and customers with whom DRYCO has longstanding relationships. (Id. ¶ 29).

Keffer and Nelson subsequently created Service247 for the purposes of looting SCG and using SCG's assets, customers, employees, and good will to compete against it. (Id. ¶¶ 29-30). Nelson and Keffer have converted funds from SCG, (id. ¶ 34); have caused SCG to divert physical assets, employees, and corporate opportunities to Service247, (id. ¶ 35); and have SCG employees working for Service247 using assets and equipment belonging to SCG, (id. ¶ 36) - all to their

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competitive advantage against SCG, (id. ¶ 37). HLG, while representing SCG, has colluded with the Defendants in allowing this behavior, in alleged violation of their fiduciary, legal and ethical duties to SCG and harming DRYCO. (Id. ¶¶ 7, 38-60).

With regards to their RICO claims, Plaintiffs allege five predicate acts. Plaintiffs first allege Wire and Mail Fraud, 18 U.S.C. §§ 1341, 1343, arguing that Defendants engaged with Ko to defraud Plaintiffs of physical assets, funds, and business opportunities in Illinois, and used email and telephones around the country to effectuate their plan. (Id. ¶¶ 83-88). Plaintiffs next allege another Wire and Mail Fraud violation under 18 U.S.C. §§ 1341, 1343, pertaining to business opportunities and equipment in Wisconsin. (Id. ¶¶ 89-92). The third set of predicate violations also arose under 18 U.S.C. §§ 1341, 1343 and relate to Defendants' and Ko's scheme to defraud SCG of equipment and business opportunities in Wisconsin. (Id. ¶¶ 93-96). The fourth set of predicate acts arise under the National Stolen Property Act 18 U.S.C.A. §§ 2314-15 (the “NSPA”). (Id. ¶¶ 97-100). Plaintiffs claim that Defendants fraudulently caused SCG to wire funds across state lines to an account in Irving, Texas belonging to Defendant Claimplus. (Id. ¶¶ 98-99). Nelson and Keffer ultimately received the benefit of these payments. (Id. ¶¶ 100). The fifth set of predicate acts allege extortion in violation of 18 U.S.C. § 1951(a). (Id. ¶¶ 101-15). Defendants repeatedly threatened Plaintiffs with economic harm, attempting to force Plaintiffs to accede to their demands - including for Plaintiffs to renounce operational authority of SCG, pay Ko exorbitant sums of money, and sell their business interest in SCG to Defendants. (Id. ¶ 103). For example, Defendant David Foreman claimed that he would “run SCG into the ground” and cause the individual Plaintiffs to spend their life savings in court if they refused to sell to Keffer and Nelson. (Id. ¶ 104). In addition, the Hanson Law Group threated Plaintiffs with legal action based on bogus claims of financial fraud - and demanded that Plaintiffs pay Ko off or give up their

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interest in SCG to avoid litigation. (Id. ¶ 105). Defendants also conspired to cause SCG to stop paying its rent, knowing that Plaintiffs' company, DRYCO, would ultimately be liable under the lease. (Id. ¶ 110). In support of Plaintiffs' § 1962(d) claim, Plaintiffs allege that Keffer, Nelson, and Ko “clearly masterminded the enterprise, ” and the remaining Defendants “at a minimum” agreed to participate in and further the plan to defraud SCG. (Id. ¶118).

LEGAL STANDARD

“To survive a motion to dismiss under 12(b)(6), a complaint must ‘state a claim to relief that is plausible on its face.' ” Adams v. City of Indianapolis, 742 F.3d 720, 728 (7th Cir. 2014) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Adams, 742 F.3d at 728 (quoting Ashcroft v. Iqbal, 566 U.S. 662, 678 (2009)). “[I]t is not enough for a complaint to avoid foreclosing possible bases for relief; it must actually suggest that the plaintiff has a right to relief . . . by providing allegations that ‘raise a right to relief above the speculative level.' ” E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 777 (7th Cir. 2007) (citing Twombly, 550 U.S. at 555) (emphasis in original). The Court construes the complaint “in the light most favorable to the nonmoving party, accept[s] well-pleaded facts as true, and draw[s] all inferences in her favor.” Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir. 2010). “[L]egal conclusions and conclusory allegations merely reciting the elements of the claim are not entitled to this presumption of truth.” McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011) (citing Iqbal, 566 U.S. at 678).

Rule 9(b) requires a party alleging fraud to...