Triumph Packaging Grp. v. Ward

• Decision Date: 10 July 2012
• Docket Number: Case No. 11–cv–7927.
• Parties: TRIUMPH PACKAGING GROUP, an Illinois corporation, Plaintiff, v. Scott WARD, Vital–X Associates, LLC, an Illinois limited liability corporation, Creative Design Products, Inc., John Does, Jane Does and ABC Companies, Defendants. Scott Ward, and Scott Ward derivatively on behalf of Triumph Packaging Group, an Illinois corporation, Counter-claimant and Third Party Plaintiff v. TCG Packaging Services, LLC d/b/a/ Triumph Packaging Group, Randall Cecola, DTG Services Group, Inc., Kallahan Marketing Group, Inc., Darwin Technology, Tesoro Realty Group LLC, and John Does, Jane Does, and ABC Companies, Counterclaim and Third Party Defendants.
• Court: U.S. District Court — Northern District of Illinois

877 F.Supp.2d 629

TRIUMPH PACKAGING GROUP, an Illinois corporation, Plaintiff,

v.Scott WARD, Vital–X Associates, LLC, an Illinois limited liability corporation, Creative Design Products, Inc., John Does, Jane Does and ABC Companies, Defendants.

Scott Ward, and Scott Ward derivatively on behalf of Triumph Packaging Group, an Illinois corporation, Counter-claimant and Third Party Plaintiff

v.TCG Packaging Services, LLC d/b/a/ Triumph Packaging Group, Randall Cecola, DTG Services Group, Inc., Kallahan Marketing Group, Inc., Darwin Technology, Tesoro Realty Group LLC, and John Does, Jane Does, and ABC Companies, Counterclaim and Third Party Defendants.

Case No. 11–cv–7927.

United States District Court,

N.D. Illinois,

Eastern Division.

July 10, 2012.

Jason Patrick Stiehl, Jeffrey Phillip Swatzell, Seyfarth Shaw LLP, Bart Allen Lazar, Chicago, IL, for Plaintiff.

Adam Seth Miller, Robert D. Sweeney, RDS Law, Chicago, IL, for Counter-claimant and Third Party Plaintiff.

Sean F. Darke, Wessels Sherman Joerg Liszka Laverty Seneczko PC, Chicago, IL, Joseph H. Laverty, Wessels Sherman Joerg Liszka Laverty Seneczko P.C., Davenport, IA, Jason Patrick Stiehl, Bart Allen Lazar, Jeffrey Phillip Swatzell, Seyfarth Shaw LLP, Chicago, IL, for Counterclaim and Third Party Defendants.

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Judge:

Plaintiff/Counter–Defendant Triumph Packaging Group (“Triumph”) and Third–Party Defendants Randall Cecola (“Cecola”), DTG Services Group, Inc. (“DTG”), Kallahan Marketing Group, Inc. (“KMG”), Darwin Technology (“Darwin”), and Tesoro Realty Group LLC (“Tesoro Realty”) (collectively, the “Third–Party Defendants”) move to dismiss Defendant/Counter–Plaintiff Scott Ward's (“Ward”) counterclaims pursuant to Federal Rules of Civil Procedure (“Rule”) 12(b)(1) and 12(b)(6). For the following reasons, the Court grants the motion in part and denies it in part.

PROCEDURAL BACKGROUND

On November 8, 2011, Triumph filed a seven-count Complaint against Scott Ward (“Ward”), Vital–X Associates, LLC (“Vital–X”), Creative Design Products, Inc. (“CDP”), John Does, Jane Does, and ABC Companies, alleging actual and threatened misappropriation of trade secrets, breach of contract, breach of fiduciary duty, violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), conversion, tortious interference with prospective economic advantage, and civil conspiracy. (R. 1, Compl.) Triumph moved for a temporary restraining order, which Judge Kennelly, in his capacity as Emergency Judge, granted on November 8, 2011. (R. 8, 9.) Triumph also moved for a preliminary injunction, which the Court denied on December 2, 2011, after conducting a hearing on the motion. See Triumph Packaging Grp. v. Ward, 834 F.Supp.2d 796 (N.D.Ill.2011).¹

Ward answered the Complaint on January 4, 2012 and filed a Counterclaim and Third–Party Complaint, alleging claims individually and derivatively on behalf of Triumph. (R. 63.) In Count I, Ward, individually, brings a claim for fraudulent inducement against Cecola and Triumph. In Count II, Ward, individually and derivatively on behalf of Triumph, asserts a RICO violation, 18 U.S.C. § 1962(c), against Cecola, the Third–Party Defendants, as well as John Does, Jane Does, and ABC Companies (collectively, “All Defendants”). In Count III, Ward, derivatively on behalf of Triumph, brings a claim for breach of fiduciary duty against Cecola. Ward, individually and derivatively on behalfof Triumph, asserts a civil conspiracy claim against All Defendants in Count IV and a conversion claim against All Defendants in Count V.

RELEVANT FACTS

Ward alleges the following facts in support of his claims, which the Court accepts as true for the purpose of this motion.²See AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir.2011). Triumph is a privately-owned manufacturer of folding cartons. (R. 63, Countercl. ¶ 4.) Ward and Cecola are individuals who reside in and are citizens of Illinois. ( Id. ¶¶ 5–6.) Ward is the former Chief Operating Offer of Triumph, and Cecola is Triumph's Chief Executive Officer. ( Id. ¶¶ 16–17, 19.) DTG, Tesoro Realty, and KMG are Illinois corporations that Cecola owns and controls. ( Id. ¶¶ 7–9.) Darwin is a business enterprise that Cecola also owns and controls. ( Id. ¶ 10.)

After meeting in September 2004, Ward and Cecola decided to purchase a failing business, turn it around, and run it together. ( Id. ¶¶ 22–35.) Cecola told Ward that he had experience owning a temporary agency, but had no manufacturing or management experience. ( Id. ¶ 26.) Ward, on the other hand, had 15 years of experience running folding carton operations, and he also had manufacturing experience. ( Id. ¶ 27.) Cecola told Ward to scope out a business and that they would be equal partners in any “deal they did.” ( Id. ¶ 32.)

In August 2005, a bank seized a company named Chapco Carton, and Cecola and Ward decided to purchase it via auction. ( Id. ¶¶ 53–54.) They agreed to rename the business Triumph Packaging. ( Id. ¶ 55.) At this time, Cecola told Ward that he had “an informal investment group of very private investors, called Trovare, that would be putting up the money for the purchase.” ( Id. ¶ 56.) He explained that Trovare “consisted of mostly Barrington and Willow Creek Church people that he had done business with in the past,” but he refused to reveal the names of the Trovare investors. ( Id. ¶¶ 57, 61.) Cecola also assured Ward that “as operators of Triumph ... he and Ward would have equal agreements and matching ownership opportunity.” ( Id. ¶ 58.) Specifically, he explained that he and Ward would start out with 5% ownership rights of the company, with the potential of gaining an additional 5%, and that Trovare would own the remaining 90%. ( Id. ¶ 59.)

Ward and Triumph met at a Palatine restaurant on August 15, 2005, at which time Cecola presented Ward with a partnership agreement and employment agreement. ( Id. ¶ 67.) Ward was dissatisfied with the employment agreement and expressed tentativeness about the partnership. ( Id. ¶¶ 68–69.) He did not sign the agreements at that time, and over the next week, he came to Cecola with several questions. ( Id. ¶¶ 69–70.) Cecola reaffirmed to Ward that they were equal partners in the business, had the same deal, and would operate the company and make the day-to-day decisions. ( Id. ¶¶ 71, 73, 75.) Following those representations, Ward “signed the agreement with Cecola's assurance that he and Ward would be ... equal partners.” ( Id. ¶ 77.) Ward and Cecola also agreed to take the same salary. ( Id. ¶ 95.) At an auction on September 6, 2005, Cecola and Ward purchased Chapco Carton, which became Triumph Packaging. ( Id. ¶ 86.)

Ward “turned things around” quickly at Triumph. ( Id. ¶¶ 89–90.) Triumph earned a profit in its first month of new ownership and had its highest sales in two years. ( Id. ¶ 91.) At some point in 2006, Triumph became short on cash. ( Id. ¶¶ 96–97.) Ward began struggling to operate Triumph, and Cecola began spending less time at Triumph. ( Id. ¶ 103.) Ward became frustrated that Cecola was not holding up his end of the bargain and was not able to obtain financing for Triumph. ( Id. ¶¶ 104–06.) Triumph had a very bad year in 2006. ( Id. ¶ 107.)

In the spring of 2007, Cecola questioned Ward as to why Triumph's raw material costs had risen. ( Id. ¶ 109.) In the process of investigating the answer, Ward learned from Triumph's controller, Jerry Poch, that Cecola had told him to send payments to Cecola's companies, DTG and Darwin, under the raw materials category to hide them. ( Id. ¶¶ 110–13.) When Ward confronted Cecola, he denied telling Poch to hide payments. ( Id. ¶ 117.) Instead, Cecola told Ward that the payments were to the Trovare investors to repay them for their initial $850,000.00 investment to purchase the company. ( Id. ¶ 118.) Later in 2007, Ward asked Poch how much money Triumph had paid toward the Trovare loan, and Poch told him that it had paid $900,000.00. ( Id. ¶ 123.) Poch told him that the principal balance on the loan was $650,000.00. ( Id. ¶ 124.) The principal balance had remained unchanged after an initial $200,000.00 payment in 2005. ( Id. ¶ 125.) Ward was very upset and confronted Cecola about the loan, to which Cecola responded that “it was just the deal with investors.” ( Id. ¶ 128.)

In June of 2007, Cecola suggested to Ward that he sign a new employment agreement. ( Id. ¶ 170.) Cecola re-confirmed to Ward that they were equal partners and that they would have the same deal on any acquisitions that the company made. ( Id. ¶ 169.) Ward and Cecola agreed that if Triumph added an additional plant, Ward's salary would increase. ( Id. ¶ 173.) Ward “reluctantly” signed the new employment agreement. ( Id. ¶ 174.)

In early 2008, Ward followed up with Poch regarding the status of the Trovare loan, and Poch told him that Triumph had paid $1,200,00.00 toward the $850,000.00 loan and that the principal balance was still $650,000.00. ( Id. ¶ 161.) When Ward confronted Cecola about the loan at this time, Cecola's story changed. He explained that it was not really a loan, but a management fee. ( Id. ¶¶ 163–64.) Ward and Cecola disagreed about whether paying management fees was appropriate since Ward and Cecola were managing Triumph. ( Id. ¶¶ 165–66.) At this time, Triumph was paying DTG and Darwin approximately $30,000.00 per month in management fees. ( Id. ¶ 167.)

In February 2008, Triumph was facing “huge cash flow problems” and was “having trouble paying its bills.” ( Id. ¶¶ 180, 192.) Around this same time, Cecola purchased a new $100,000.00 car. ( Id. ¶ 186.) Ward learned around this time that Cecola did not turn in expense reports to Triumph, and that Triumph paid Cecola's companies “no matter what.” ( Id. ¶¶ 188, 190.)

In April 2008, Triumph “was in serious jeopardy of missing pay-roll payments to its employees.” ( Id. ¶ 197.) Ward called Cecola about the issue, and Cecola told Ward that “if the company has to...