Zurich Capital Markets Inc. v. Coglianese

Decision Date22 August 2005
Docket NumberNo. 03 C 7960.,03 C 7960.
Citation383 F.Supp.2d 1041
PartiesZURICH CAPITAL MARKETS INC., et al., Plaintiffs, v. Michael COGLIANESE, et al., Defendants.
CourtU.S. District Court — Northern District of Illinois

David P. Sanders, Terence George Banich, II, Chadwick O. Brooker, Jenner & Block, LLC, Chicago, IL, Philippe Z. Selendy, Alan B. Vickery, Stephen A. Larson, Frank C. Moore, III, Howard Vickery, Courtney R. Rockett, Boies, Schiller and Flexner LLP, New York City, for Plaintiffs.

Mark H. Carnow, Grippo & Elden, John Donovan Lien, Robert Montell Stephenson, Nathaniel Lee Strup, Foley & Lardner, Barry Francis Macentee, Hinshaw & Culbertson, Peter Vincent Baugher, Jason M. Rosenthal, Schopf & Weiss, Gerald Haberkorn, Robert Hill Smeltzer, Lowis & Gellen, Sheldon H. Elsen, John J. Montone Orans, Elsen & Lupert, LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

ST. EVE., District Judge.

Defendants Oceanic Bank and Trust Limited ("Oceanic"), Kenneth Clowes ("Clowes"), and Terah Rahming ("Rahming") (collectively "the Oceanic Defendants") move to dismiss the Second Amended Complaint ("SAC") in its entirety as pled against them. For the reasons discussed below, the Court grants in part and denies in part the Oceanic Defendants' motion.

BACKGROUND
I. Procedural Background
A. No. 01-C-6125

On August 14, 2001, ZCM brought suit against Oceanic and several other defendants. ZCM brought claims against Oceanic for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and several other state and Bahamian law claims. That case was assigned to Judge Lindberg, who on March 25, 2002, dismissed with prejudice, pursuant to Rule 12(b)(6), ZCM's Section 10(b) claim against Oceanic. Judge Lindberg declined to exercise supplemental jurisdiction over ZCM's state and Bahamian law claims against Oceanic and dismissed those claims without prejudice. That action was eventually transferred to the Court, who entered a notice of dismissal of all defendants on October 19, 2004.

B. No. 03-C-7960

ZCM filed suit against the Oceanic Defendants, as well as other defendants, on November 7, 2003. ZCM brought claims against the Oceanic Defendants for securities fraud under Section 20(a) of the Exchange Act, the same state and Bahamian law claims that Judge Lindberg had previously dismissed without prejudice, as well as additional state and Bahamian law claims that it had not asserted against Oceanic in the first action.

On August 2, 2004, the Court granted in part and denied in part the Oceanic Defendants' motion to dismiss the Amended Complaint. The Court gave ZCM leave to replead the claims it dismissed. On November 22, 2004, ZCM filed the Second Amended Complaint in this case, alleging the following claims against the Oceanic Defendants: violation of Section 20(a) of the Exchange Act against all Oceanic Defendants (Count III); violation of the Illinois Securities Law of 1953, 815 Ill. Comp. Stat. 5/12-13 against Oceanic (Count VII); common law fraud under Illinois law against all Oceanic Defendants (Count VIII); conspiracy to defraud against all Oceanic Defendants (Count IX); unjust enrichment against all Oceanic Defendants (Count X); conversion against Oceanic (Count XI); breach of M.J. Select's Subscription Agreement and Administration, Registrar & Transfer Agency Agreement against Oceanic (Count XII); intentional interference with contract against Oceanic and Rahming (Count XIII); breach of fiduciary duty under the common law of Illinois against all Oceanic Defendants (Count XIV); breach of contract against Oceanic (Count XVI); violation of the Bahamian Mutual Funds Act, 1995 and regulations thereunder against all Oceanic Defendants (Count XVII); and breach of common law duty of care under Bahamian law against all Oceanic Defendants (Count XVIII).

II. Factual Background

The Court provided a detailed discussion of ZCM's pleadings in the Amended Complaint in Zurich Capital Markets v. Coglianese et al., 332 F.Supp.2d 1087 (N.D.Ill.2004) and in Zurich Capital Markets v. Coglianese et al., 388 F.Supp.2d 847 (N.D.Ill.2004). To the extent ZCM's pleadings in the Second Amended Complaint differ from the Amended Complaint, the Court will address those differences in its Analysis below.

ANALYSIS
I. Legal Standard

The Oceanic Defendants move to dismiss the Second Amended Complaint pursuant to Rule 12(b)(6). In its motion, the Oceanic Defendants request that the Court reconsider certain of its rulings from its September 23, 2004 opinion granting in part and denying in part the Oceanic Defendants' motion to dismiss ZCM's Amended Complaint.

A. Rule 12(b)(6)

The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal sufficiency of a complaint, not the merits of the case. Triad. Assocs, Inc. v. Chicago Hous. Auth., 892 F.2d 583, 586 (7th Cir.1989). A court must accept as true all well-plead allegations of a complaint. Thompson v. Illinois Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir.2002). Courts construe ambiguities in favor of the plaintiff. Id.

B. Motions For Reconsideration

A court may exercise its inherent authority to reconsider an interlocutory order because such orders are "subject to revision at any time before the entry of judgment adjudicating all the claims." See Fed.R.Civ.P. 54(b); see also Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 12, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ("every order short of a final decree is subject to reopening at the discretion of the district judge"). Accordingly, under Rule 54(b), a court may correct clear errors of fact or law in an interlocutory order. See Young v. Murphy, 161 F.R.D. 61, 62 (N.D.Ill.1995). The Seventh Circuit has repeatedly cautioned that "motions for reconsideration serve a limited function: to correct manifest errors of law or fact or to present newly discovered evidence." Publishers Resource Inc. v. Walker-Davis Publications, Inc., 762 F.2d 557, 561 (7th Cir.1985) (quotation omitted); see also In re Oil Spill by "Amoco Cadiz" Off Coast of France on March 16, 1978, 794 F.Supp. 261, 267 (N.D.Ill.1992) ("Motions to reconsider are not at the disposal of parties who want to `rehash' old arguments"). Thus, it is clear that motions to reconsider are not appropriate vehicles to advance arguments already rejected by the Court or new legal theories not argued before the ruling. Schartle v. Motorola, Inc., No. 93 C 5508, 1994 WL 323281 at * 1 (N.D. Ill. June 24, 1994).

II. Res Judicata

The Oceanic Defendants argue that res judicata bars certain of ZCM's claims against them. Res judicata bars a second lawsuit in federal court when there exists: "(1) an identity of the causes of actions; (2) an identity of the parties or their privies; and (3) a final judgment on the merits." Kratville v. Runyon, 90 F.3d 195, 197-98 (7th Cir.1996). Res judicata "bars not only those issues which were actually decided in a prior suit, but also all issues which could have been raised in that action." Id. (quoting Brzostowski v. Laidlaw Waste Sys., Inc., 49 F.3d 337, 338 (7th Cir.1995)).

A. Identity Of The Causes Of Actions

The Oceanic Defendants contend that res judicata bars ZCM's claims against them brought in Count III (Section 20(a)), Count X (unjust enrichment), Count XII (breach of M.J. Select's subscription agreement) Count XIII (intentional interference with contract), Count XIV (breach of fiduciary duty), Count XVI (breach of contract), Count XVII (Bahamian Mutual Funds Act), and Count XVIII (breach of Bahamian common law duty of care).1

ZCM argues that res judicata does not preclude its newly pled state and Bahamian law claims because the district court in the first action would not have exercised supplemental jurisdiction over those claims if asked. ZCM cites Wright & Miller for the proposition that where a "federal court refuses to accept supplemental jurisdiction [over state claims] — or if [a court in a subsequent action] is convinced that the federal court would have refused to exercise supplemental jurisdiction if asked — there would be no preclusion in a subsequent state proceeding." Charles A. Wright & Arthur R. Miller, Fed. Prac. & Proc. § 4412. Had ZCM brought its Section 20(a) claim along with its newly pled state and Bahamian law claims in the first action, however, the court could have maintained supplemental subject matter jurisdiction over those claims and likely would not have dismissed them. Further, here, ZCM pleads diversity jurisdiction pursuant to 28 U.S.C. § 1332, along with supplemental jurisdiction pursuant to 28 U.S.C. § 1367, as its basis for subject matter jurisdiction for its state and Bahamian law claims. If ZCM had brought its newly pled state and Bahamian law claims in the first action, pleading diversity jurisdiction, the court would have had jurisdiction over those claims even after dismissing ZCM's Section 10(b) claim. See Shaver v. F.W. Woolworth Co., 840 F.2d 1361, 1365-66 (7th Cir.1988) (holding that if diversity jurisdiction exists for a plaintiff's state law claims then it must bring those claims in the same action along with its federal claims). Accordingly, under either scenario, the Court is not convinced that Judge Lindberg would have dismissed ZCM's newly pled state and Bahamian law claims had they been brought in the first action.

The Seventh Circuit addressed a situation similar to this in Harper Plastics, Inc. v. Amoco Chems. Corp., 657 F.2d 939, 945 (7th Cir.1981). The court initially noted that "res judicata operates to bar litigation of matters that should have been raised in the prior proceeding." Id. The plaintiff, in Harper Plastics, brought state claims in state court after it had lost on a federal claim in federal court. Because those claims shared the same operative facts, the Seventh Circuit held that the law required the plaintiff to bring all of those claims in the same action. The court explained...

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