Wendt et al v. Handler, Thayer & Duggan, LLC et alMOTIONN.D. Ill.September 2, 2008IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION DALLEN AND PEGGY WENDT, Plaintiffs, v. HANDLER, THAYER & DUGGAN, LLC, ET AL. Defendants. ) ) ) ) ) ) ) ) ) Case No. 1:08-CV-03612 Judge Castillo Magistrate Judge Cole DEFENDANTS' MOTION TO DISMISS Defendants, Handler, Thayer & Duggan, LLC, James M. Duggan, Thomas J. Handler, Steven J. Thayer and Gregory Bertsch (collectively “HTD”), by counsel, respectfully move this Court to dismiss the claims asserted in Plaintiffs' Complaint in their entirety. A memorandum in support of this motion is tendered herewith. As grounds for this motion, HTD states as follows: 1. The allegations in Plaintiffs' Complaint do not satisfy the pleading requirements of Fed. R. Civ. P. 8(a)(2) and Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007) and should be dismissed. 2. The allegations in Plaintiffs' Complaint do not satisfy the pleading requirements of Fed. R. Civ. P. 9(b) and should be dismissed. 3. The allegations in Plaintiffs' Complaint do not satisfy the pleading requirements of the Private Securities Litigation Reform Act and should be dismissed. See 15 U.S.C. § 78u-4(b)(1), (2). Case 1:08-cv-03612 Document 45 Filed 09/02/2008 Page 1 of 5 2 4. The claims set forth in Plaintiffs' Complaint are barred by applicable statutes of repose and limitations and should be dismissed. See 735 ILCS 5/13-205; 815 ILCS 505/10a(e); 28 U.S.C.A. § 1658(b); and 735 ILCS 5/13-214.3. 5. Plaintiffs' breach of fiduciary duty claim is duplicative of their claim for legal malpractice and should be dismissed. 6. Plaintiffs' Complaint fails to state a claim upon which relief can be granted and should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6). 7. The undersigned counsel hereby certifies that she complied with the Court's Case Management Procedure on Motion Practice by sending a concise letter summarizing the legal and factual grounds for this motion, with references to supporting authorities, to the nonmoving party and making a sincere effort to resolve issues relating to this motion prior to filing same. WHEREFORE, Defendants, Handler, Thayer & Duggan, LLC, James M. Duggan, Thomas J. Handler, Steven J. Thayer and Gregory Bertsch, respectfully request that this Court dismiss the claims in Plaintiffs' Complaint with prejudice. DATED: September 2, 2008 Respectfully submitted, HANDLER, THAYER & DUGGAN, LLC, JAMES M. DUGGAN, THOMAS J. HANDLER, STEVEN J. THAYER AND GREGORY BERTSCH By: /s/Barbara B. Edelman One of Their Attorneys Barbara B. Edelman Gwen R. Pinson Christopher M. Parenti (# 6256494) Dinsmore & Shohl LLP 250 West Main Street, Suite 1400 Lexington, KY 40507 Telephone: (859) 425-1000 Case 1:08-cv-03612 Document 45 Filed 09/02/2008 Page 2 of 5 3 Facsimile: (859) 425-1099 Edelman@dinslaw.com Gwen.Pinson@dinslaw.com Cparenti@dinslaw.com Attorneys for Defendants, Handler, Thayer & Duggan, LLC, James M. Duggan, Thomas J. Handler, Steven J. Thayer and Gregory Bertsch Case 1:08-cv-03612 Document 45 Filed 09/02/2008 Page 3 of 5 4 CERTIFICATE OF SERVICE I hereby certify that on September 2, 2008, I electronically filed the foregoing Defendants’ Motion to Dismiss with the Clerk of the Court using the CM/ECF system, which sent e-mail notification of that filing to the following: Eric S. Rein Dykema Gossett PLLC 10 South Wacker Drive Suite 2300 Chicago, IL 60606 (312) 876-1700 erein@dykema.com Paul Richard Brown Chris C. Cramer Beresford Booth PLLC 145 Third Avenue, Suite 200 Edmonds, WA 98020 (425) 776-4100 paulb@beresfordlaw.com chrisc@beresfordlaw.com Attorneys for Plaintiffs, Dallen and Peggy Wendt Peter M. King William H. Jones Kasey M. Folk Canel, Davis & King 10 South LaSalle Street Suite 3400 Chicago, Il 60603 (312)372-4142 pking@daviskinglaw.com wjones@daviskinglaw.com kfolk@daviskinglaw.com Attorneys for Defendants, Foster & Dunhill Planning Services, LLC and Stephen P. Donaldson Case 1:08-cv-03612 Document 45 Filed 09/02/2008 Page 4 of 5 5 Elaine S. Vorberg Law Offices of Elaine S. Vorberg 1821 Walden Office Square #400 Schaumburg, IL 60173 (847)397-9793 elaine@vorberglaw.com Attorney for Defendants, Sunderlage Resource Group, Inc. and Tracy J. Sunderlage John P. Buckley Dean J. Polales Seth Alexander Horvath Ungaretti & Harris LLP 3500 Three First National Plaza Chicago, IL 60602 (312) 977-4400 jpbuckley@uhlaw.com djpolales@uhlaw.com sahorvath@uhlaw.com Attorney for Defendants, Offshore Trust Service, Inc., Joshua J. Crithfield and Duane J. Crithfield /s/Barbara B. Edelman 94524_2 Case 1:08-cv-03612 Document 45 Filed 09/02/2008 Page 5 of 5 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION DALLEN AND PEGGY WENDT, Plaintiffs, v. HANDLER, THAYER & DUGGAN, LLC, ET AL. Defendants. ) ) ) ) ) ) ) ) ) Case No. 1:08-CV-03612 Judge Castillo Magistrate Judge Cole DEFENDANTS' MEMORANDUM IN SUPPORT OF MOTION TO DISMISS Defendants, Handler, Thayer & Duggan, LLC, James M. Duggan, Thomas J. Handler, Steven J. Thayer and Gregory Bertsch (collectively “HTD”), by counsel, respectfully tender the following Memorandum in Support of their Motion to Dismiss the claims asserted against them in Plaintiffs' Complaint in their entirety. INTRODUCTION This is not a case in which unsophisticated investors were swindled out of their life savings. Rather, this case involves a multi-millionaire couple who sought out different groups of professionals to assist them with offshore investments in which they could protect their assets from creditors and receive favorable tax treatment. In fact, Plaintiff, Dallen Wendt, proved to be very knowledgeable and extremely meticulous with regard to his investment portfolio. He sent dozens of emails to his many advisors wherein he inquired about each and every aspect of the accounts and instruments in which he had directed his trusts to invest. Despite all Dallen Wendt's research and study into the nature of his investments, an unforeseeable market crash has jeopardized the returns he had hoped to receive. Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 1 of 17 2 Were it not for the devastating collapse of the subprime mortgage market, Plaintiffs would never have brought this case. It was that collapse, however, not some fraudulent scheme in which HTD allegedly engaged, that has caused certain of the instruments in the Plaintiffs' trusts to become illiquidable. Just like the sophisticated investors who lost money when the dot.com bubble burst in 2002, Dallen Wendt is now crying fraud and looking for someone to make him whole. Like the market analysts against whom so many claims were brought and then dismissed, HTD did not cause the subprime mortgage collapse, nor should it be held accountable for the resulting losses suffered by the Plaintiffs' trusts. See, e.g., In re Merrill Lynch & Co. Research Reports Sec. Litig., 273 F. Supp. 2d 351, 362 (S.D.N.Y. 2003) (explaining that "[t]he cited alleged omissions of conflicts of interest . . . are not the 'legal cause' of the plaintiff's losses. There was no causal connection between the burst of the bubble and the alleged omissions; it was the burst which caused the market drop and the resultant losses a considerable time thereafter when plaintiffs decided it was time to sell."). BACKGROUND In 2002, Plaintiffs, Dallen and Peggy Wendt (the "Wendts"), began looking into various asset protection and investment options, including offshore trusts. [See Complaint at ¶¶ 17 and 23.] At a conference in May of 2002, Dallen Wendt met representatives of HTD, Foster & Dunhill Consulting, Inc., Offshore Trust Service, Inc. and Fidelity Insurance Company Ltd. ("Fidelity") and attended presentations relating to certain offshore trust investment structures. [See id. at ¶¶ 19-23.] Over six months later, after investigating numerous trust investment strategies, the Wendts 1 hired HTD 2 to provide international tax planning legal services and then subsequently to draft the documents to set up one of their trusts. While HTD prepared the documents relating to the Smiling Frog Trust, HTD 1 While Plaintiffs will be referred to collectively throughout this memorandum as "the Wendts", it should be noted that HTD dealt almost exclusively with Dallen Wendt. 2 Though the Complaint attempts to obfuscate the facts relating to the retention of HTD by referring to the July 2002 letter BPS sent to Dallen Wendt, it clearly states that the Wendts retained HTD, not BPS. [See Complaint at ¶¶ 33 and 36.] Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 2 of 17 3 did not prepare the documents used to establish the Wendts' other trust, the Black Ink Trust. [See id. at ¶¶ 36, 44 and 45.] Sometime between December 2002, when the trusts were set up, and January 2003, the Wendts deposited funds in both trusts. [See id. at ¶ 43.] In January 2003 the trustees of the Wendts' trusts purchased certain Fidelity life insurance policies, which in turn invested the policy proceeds in certain accounts, known as the Fixed 8 and the Fixed 8.5 Accounts 3 , that were administered by an offshore entity known as Westminster Hope & Turnberry. 4 [See id. at ¶¶ 23 and 65.] Funds in these accounts were invested in Collateralized Debt Obligations, commonly known as CDOs. [See id. at ¶ 78.] Though the Complaint alleges that the trust funds were depleted as a result of management fees and commissions earned by the defendants, the Court certainly can take judicial notice of the recent collapse of the subprime mortgage market that virtually eliminated the secondary market for CDOs. See Fed. R. Evid. 201(b); In re Merrill Lynch & Co. Research Reports Sec. Litig., 273 F. Supp. 2d 351, 357 n. 13 (S.D.N.Y. 2003). It was this collapse, and not the actions of the defendants herein, that caused the decline in value of the Wendts' trusts. See In re Merrill Lynch & Co. Research Reports Sec. Litig., 273 F. Supp. 2d at 362 (noting that "defendant does not become an insurer against an intervening cause unrelated to the acquisition, e.g., a precipitous price decline caused by a market crash."). Even if the Wendts could establish a causal link between the unforeseen market collapse and the actions of HTD, the insufficiency of the allegations in the Complaint warrant dismissal of their claims pursuant to Fed. R. Civ. P. ("FRCP") 12(b)(6). 3 Upon information and belief, the trustee of the Black Ink Trust invested in the accounts that matured in January of 2008 and are currently in default while the trustee of the Smiling Frog Trust invested in the accounts that do not mature until 2013. [See id. at ¶ 65.] 4 Ironically, to date, the Wendts have failed to bring suit against Fidelity or Westminster Hope & Turnberry, even though these entities are the ones whose agreements with the Wendts' trusts are in default. Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 3 of 17 4 ARGUMENT The standard of review in deciding a motion to dismiss a complaint pursuant to FRCP 12(b)(6) requires that the Court view all of the complaint’s allegations in the light most favorable to the plaintiff. Importantly, though, the Court need not accept the legal conclusions asserted in the complaint. See, e.g., Davis v. Frapolly, 747 F. Supp. 451, 452 (N.D. Ill. 1989). In Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007), the United States Supreme Court clarified the pleading standards a plaintiff must meet to avoid dismissal under FRCP 12(b)(6): "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 1964-65. The Court went on to explain, “Rule 8(a)(2) still requires a ‘showing’ rather than a blanket assertion, of entitlement to relief.” Id. at 1965 n.3; see also Limestone Development Corp. v. Village of Lemont, 520 F.3d 797, 802-03 (7th Cir. 2008) (noting that Twombly "teaches that a defendant should not be forced to undergo costly discovery unless the complaint contains enough detail, factual or argumentative, to indicate that the plaintiff has a substantial case."). Here the allegations in Wendts' Complaint do not satisfy the Twombly standard. The Wendts filed suit over five years after the trusts at issue were created. The allegations in the Complaint fail to demonstrate why certain claims should not be dismissed because they have been brought outside applicable limitations periods. Moreover, the allegations relating to common law and statutory fraud fail the particularity requirement of FRCP 9(b) and should be dismissed. Finally, the Wendts' breach of fiduciary duty claim against HTD should be dismissed as it is duplicative of their claim for legal malpractice. Since the Wendts' Complaint fails to state a claim upon which relief could be granted, all of the claims asserted against HTD therein should be dismissed. Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 4 of 17 5 A. The Statute Of Repose Bars The Wendts' Claim For Securities Violations. Count V of the Wendts' Complaint, which alleges claims for securities violations, is barred by the five-year statute of repose governing Rule 10b-5 claims. 28 U.S.C.A. § 1658(b)(2). As explained by a prior decision from this District, "[t]he 'violation' for the purposes of the Rule 10b-5 statute of repose occurs when the defendant makes a misrepresentation in connection with the sale or purchase of securities; the sale itself need not have occurred to start the running of the repose period." Wafra Leasing Corp. 1999-A-1 v. Prime Capital Corp., 192 F. Supp. 2d 852, 864 (N.D. Ill. 2002). Though the Complaint is devoid of any specific allegations as to what misrepresentations were made when by which defendants, the decision in Wafra Leasing Corp. clearly establishes that the statute of repose began to run in January 2003 when the trust funds were invested in what the Complaint defines as the "Fixed Accounts", if not before. 5 [See Complaint at ¶ 65.] Since the Complaint in this matter was filed over five years and five months after the purchase of the securities at issue, the five-year statute of repose bars any claims the Wendts may have had arising under the Securities Exchange Act, and such claims should be dismissed. 6 B. Claims Not Adequately Pleaded Pursuant to Twombly, the FRCP And Other Applicable Authorities Should Be Dismissed. As previously discussed, Twombly recognizes that "a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions." 127 S. Ct. at 1964- 65. Moreover, the Private Securities Litigation Reform Act and FRCP 9(b) dictate that securities 5 Notably, this Court has previously held that the continuing violation doctrine, through which otherwise time-barred acts can be linked to conduct falling within the limitations period, does not apply in federal securities fraud actions. Levine v. Bally Total Fitness Holding Corp., 2006 U.S. Dist. LEXIS 95006, at *29-30 (N.D. Ill. Sept. 29, 2006) (attached hereto as Exhibit A). 6 Moreover, because the Wendts' trusts, not the Wendts themselves, purchased the investments at issue, they have no standing to bring these claims under Section 10(b) and Rule 10(b)(5). See, e.g., Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731 (1975); see also O'Brien v. Continental Illinois Nat'l Bank & Trust Co., 593 F.2d 54, 63 (7th Cir. 1979) (holding that plaintiff could not maintain securities fraud claim against trustee where trust, not plaintiff, had purchased securities at issue and plaintiff was simply trust beneficiary). Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 5 of 17 6 and fraud claims be stated with specificity and particularity. When these pleading standards are applied to the various causes of action set forth in the Wendts' Complaint, the allegations therein wholly fail to satisfy these requirements. Throughout the Complaint, the firm, Handler, Thayer & Duggan, LLC, and its individual members are continually referred to collectively along with the other named defendants in this matter as "Defendants." Moreover, it is impossible to distinguish the allegations against the individual HTD defendants from those asserted against their firm and an entity that no longer exists - BPS - an entity which the Wendts never retained to provide services to them. Finally, there is also no way to differentiate the various allegations against each of the individual HTD defendants - all of whom had differing levels of involvement in their firm's representation of the Wendts. 7 The manner in which the Complaint sets forth allegations against HTD collectively under the categories of "Conference Presenters", "Trust Advisors" and "Defendants" fails to satisfy the pleading requirements applicable to many of the claims asserted therein. [See, e.g., Complaint at ¶¶ 21, 37 and 42.] Thus, the claims discussed below should be dismissed. 1. The Wendts' securities claim fails to satisfy the pleading requirements of the Private Securities Litigation Reform Act. Under the Private Securities Litigation Reform Act ("PSLRA"), a plaintiff must (1) "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed" and (2) "state with particularity facts giving rise to a strong inference that the defendant acted with the 7 For example, while James Duggan and Thomas Handler are identified as "Conference Presenters", there are no specific allegations in the Complaint with regard to Steven Thayer's interactions with the Wendts beyond general, conclusory statements that he, along with the others, acted as the Wendts' attorney and financial advisor. [See Complaint at ¶ 37.] Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 6 of 17 7 required state of mind." 15 U.S.C. § 78u-4(b)(1), (2). "[T]he PSLRA essentially returns the class of cases it covers to a very specific version of fact pleading--one that exceeds even the particularity requirement of Federal Rule of Civil Procedure 9(b)." Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 594 (7th Cir. 2006), vacated on other grounds, 127 S. Ct. 2499 (2007). As under Rule 9(b), "[i]t is not sufficient for a complaint to refer to all the defendants under the general term 'Defendants' or refer to a defendant in an 'and/or' manner. . . . The complaint must be specific for each defendant." Brinker Capital Holdings v. Imagex Servs., 178 F.R.D. 380, 384 (N.D.N.Y. 1998). Here, not only is the Wendts' Complaint devoid of any specific allegations as to what misleading statements were made when by which defendants, but the Complaint's continual references to all defendants under that general term or to various groups of defendants under other collective terms, such as "Conference Presenters" or "Trust Advisors", clearly fails the PLSRA's requirement that a complaint be specific as to each defendant. Accordingly, the claims set forth in Count V of the Wendts' Complaint should be dismissed. 2. The Wendts' common law and statutory fraud claims fail to satisfy FRCP 9(b) should be dismissed. A plaintiff seeking to recover for fraud under Illinois law must allege and prove: (1) a false statement of material fact; (2) knowledge or belief of the falsity by the party making the false statement; (3) an intention to induce the other party to act; (4) action by the other party in reliance on the truth of the statement; and (5) damage to the other party resulting from the reliance. People ex rel. Hartigan v. E & E Hauling, Inc., 607 N.E.2d 165, 174 (Ill. 1992). "Predictions about the future are opinions and not actionable under a theory of fraud." Lidecker v. Kendall College, 194 Ill. App. 3d 309, 316, 550 N.E.2d 1121, 1125 (Ill. App. Ct. 1 Dist. 1990); Murphy v. Walters, 87 Ill. App. 3d 415, 422-23, 410 N.E.2d 107, 113 (Ill. App. Ct. 2 Dist. 1980) (financial projections are not actionable); Niemoth v. Kohls, 171 Ill. App. 3d 54, 68-69, 524 N.E.2d 1085, 1094 (Ill. App. Ct. 1 Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 7 of 17 8 Dist. 1988) (same). A plaintiff alleging fraud must demonstrate reasonable reliance. See Kennedy v. Venrock Assocs., 348 F.3d 584, 592 (7th Cir. 2003) (''There is no actionable fraud without reasonable reliance, and reliance cannot be reasonable when it presupposes a failure to read clear language.''). In fact, Illinois has held that the "bespeaks caution" doctrine, pursuant to which investors cannot reasonably rely on an offeror's optimistic statements about an investment when the offering documents contain cautionary language about the risks involved in the investment, is applicable in common law fraud cases and can be raised on a motion to dismiss. Lagen v. Balcor Co., 274 Ill. App. 3d 11, 20, 653 N.E.2d 968, 974-75 (Ill. App. Ct. 2 Dist. 1995). Each of the aforementioned elements of a plaintiff's fraud claim must be alleged with sufficient particularity pursuant to FRCP 9(b). The Seventh Circuit explained "[t]his means the who, what, when, where, and how: the first paragraph of any newspaper story." DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). "[I]n a case involving multiple defendants, . . . the complaint should inform each defendant of the nature of his alleged participation in the fraud." Vicom, Inc. v. Harbridge Merchant Servs., 20 F.3d 771, 778 (7th Cir. 1994); see also Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993) ("Rule 9(b) is not satisfied where the complaint vaguely attributes the alleged fraudulent statements to 'defendants.'"); Balabanos v. North Am. Inv. Group, Ltd., 708 F. Supp. 1488, 1493 (N.D. Ill. 1988) (stating that in cases involving multiple defendants "the complaint should inform each defendant of the specific fraudulent acts that constitute the basis of the action against the particular defendant"). "A complaint that attributes misrepresentations to all defendants, 'lumped' together for pleading purposes, generally is insufficient." Design Time, Inc. v. Synthetic Diamond Technology, Inc., 674 F. Supp. 1564, 1569 (N.D. Ill. 1987). In addition, the Seventh Circuit has held that a complaint alleging a claim under the Illinois Consumer Fraud Act "must be pled with the same specificity as that required under common law Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 8 of 17 9 fraud." Davis v. G.N. Mortg. Corp., 396 F.3d 869, 883-84 (7th Cir. 2005) (citation omitted) (affirming summary judgment entered in favor of the defendants). Specifically, a complaint must state "the identity of the person making the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated." Gallagher Corp. v. Massachusetts Mut. Life Ins. Co., 940 F. Supp. 176, 180 (N.D. Ill. 1996) (citations omitted). The Illinois Supreme Court has held that failure to include specific allegations regarding "the deceptive manner of defendant's acts or practices . . . requires the dismissal of the complaint." Robinson v. Toyota Motor Credit Corp., 201 Ill. 2d 403, 419, 775 N.E.2d 951, 961 (Ill. 2002) (citation omitted). As previously discussed, the Complaint constantly "lumps together" the HTD defendants with the other named defendants in this matter, as well as with one another and BPS, making it impossible to differentiate which allegations are being levied against which defendant. Since all of the individual HTD defendants had differing levels of involvement in their firm's representation of the Wendts, the Complaint fails to put them on notice as to whose conduct forms the basis of the Wendts' fraudulent misrepresentation claims. As such, the common law and statutory fraud claims asserted in Counts I and IV of the Complaint should be dismissed since they fail to allege fraud with sufficient particularity to survive scrutiny under FRCP 9(b). 3. The insufficiency of the Wendts' fraud allegations requires dismissal of their unjust enrichment claim as well. Unjust enrichment is a basis of recovery, not a separate cause of action. In Alliance Acceptance Co. v. Yale Ins. Agency, Inc., 271 Ill. App. 3d 483, 492, 648 N.E.2d 971, 977 (Ill. App. Ct. 1 Dist. 1995), an Illinois appellate court explained the concept of "unjust enrichment" as follows: To state a cause of action based on a theory of unjust enrichment, a plaintiff must allege that the defendant has unjustly retained a benefit to the plaintiff's detriment, and that defendant's retention of the benefit violates the fundamental principles of justice, equity, and good conscience. . . . The term ‘unjust enrichment’ is not Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 9 of 17 10 descriptive of conduct that, standing alone, will justify an action for recovery. Rather, it is a condition that may be brought about by unlawful or improper conduct as defined by law, such as fraud, duress, or undue influence, and may be redressed by a cause of action based upon that improper conduct. Id. (citations and internal quotation marks omitted). Because unjust enrichment must be based upon another cause of action, such as fraud, "unjust enrichment cannot form the basis for liability" where the underlying fraud claim is deficient. Mulligan v. QVC, Inc., 321 Ill. Dec. 257, 267, 888 N.E.2d 1190, 1200 (Ill. App. Ct. 1 Dist. 2008). Since the underlying fraud claim asserted herein is deficient as noted in the preceding section, the Wendt's claim for unjust enrichment should be dismissed as well. In addition, because "[r]ecovery under a theory of unjust enrichment is based on a contract implied in law", the doctrine has no application where the relationship of the parties is governed by a contract. Wheeler-Dealer, Ltd. v. Christ, 379 Ill. App. 3d 864, 872, 885 N.E.2d 350, 357 (Ill. App. Ct. 1 Dist. 2008) (citation omitted). Where the terms of a contract, such as an engagement letter, govern the relationship between the parties, there can be no claim for unjust enrichment. See, e.g., Center for Athletic Medicine, Ltd. v. Independent Medical Billers of Illinois, Inc., 321 Ill. Dec. 485, 494, 889 N.E.2d 750, 759 (Ill. App. Ct. 1 Dist. 2008) (holding that plaintiff could not sue in equity for unjust enrichment where the parties had entered into a contract, even though the contract was void as a matter of law). Though the Complaint points to the proposed engagement letter from BPS instead of the engagement letters that governed the attorney-client relationship between HTD and the Wendts, it clearly alleges that the relationship between the parties was governed by an express contract. [See Complaint at ¶ 36.] As a result, there can be no recovery under the theory of unjust enrichment, and the claims in Count II of the Complaint should be dismissed. Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 10 of 17 11 4. The Wendts' allegations of legal malpractice fail to satisfy the pleadings requirements set forth in Twombly. To prevail in an action for legal malpractice, a plaintiff must prove the following elements: (1) the existence of an attorney-client relationship that establishes a duty on the part of the attorney; (2) a negligent act or omission constituting a breach of that duty; (3) proximate cause establishing that but for the attorney's negligence, the plaintiff would have prevailed in the underlying action; and (4) damages. First Nat'l Bank v. Lowrey, 375 Ill. App. 3d 181, 196, 872 N.E.2d 447, 464 (Ill. App. Ct. 1 Dist. 2007). As previously discussed, the collective nature in which the allegations in the Complaint are styled not only make it impossible to distinguish the allegations against the individual HTD defendants from those asserted against their firm and/or the other named defendants, but there is also no way to differentiate the various allegations against each of the individual HTD defendants themselves - all of whom had differing levels of involvement in their firm's representation of the Wendts. Because the foregoing elements are not pleaded with the specificity required by Twombly and its progeny, the claims in Count VI of the Complaint should be dismissed. 5. The Wendts' bare allegations of the existence of a conspiracy cannot survive a motion to dismiss. "Civil conspiracy is defined as 'a combination of two or more persons for the purpose of accomplishing by concerted action either an unlawful purpose or a lawful purpose by unlawful means.'" Duncan v. Peterson, 359 Ill. App. 3d 1034, 1050, 835 N.E.2d 411, 425 (Ill. App. Ct. 2 Dist. 2005) (citing McClure v. Owens Corning Fiberglas Corporation, 188 Ill. 2d 102, 133, 720 N.E.2d 242 (Ill. 1999)). The gist of a civil conspiracy claim is not the agreement itself, but the tortious acts performed in furtherance of the agreement. Adcock v. Brakegate, Ltd., 164 Ill. 2d 54, 63, 645 N.E.2d 888, 894 (Ill. 1994). The mere characterization of a combination of acts as a conspiracy is insufficient to withstand a motion to dismiss. Buckner v. Atlantic Plant Maintenance, 182 Ill. 2d 12, 23-24, 694 N.E.2d 565, 571 (Ill. 1998). Further, the bare allegation of the existence Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 11 of 17 12 of a conspiracy does not constitute an actionable wrong upon which liability for damages may be found. Hume & Liechty Veterinary Assocs. v. Hodes, 259 Ill. App. 3d 367, 369, 632 N.E.2d 46, 48 (Ill. App. Ct. 1 Dist. 1994). Because the Complaint contains no factual allegations demonstrating that HTD conspired with anyone, the Wendts' conspiracy allegations set forth in Count VIII of the Complaint do not satisfy the pleading requirements of Twombly or the Illinois cases cited above and should be dismissed. C. Because The Wendts' Breach Of Fiduciary Duty Claim Is Duplicative Of Their Claim For Legal Malpractice, It Should Be Dismissed. Illinois law clearly holds that "[w]hen a breach of fiduciary duty claim is based on the same operative facts as a legal malpractice claim, and results in the same injury, the later claim should be dismissed as duplicative." Fabricare Equip. Credit Corp. v. Bell, 328 Ill. App. 3d 784, 791, 767 N.E.2d 470, 476 (Ill. App. Ct. 1 Dist. 2002); see also Brush v. Gilsdorf, 335 Ill. App. 3d 356, 360, 783 N.E.2d 77, 80 (Ill. App. Ct. 3 Dist. 2002) ("[I]n effect any alleged malpractice by an attorney also evidences a simultaneous breach of trust; however, that does not mean every cause of action for professional negligence also sets forth a separate and independent cause of action for breach of fiduciary duty.") (citing Calhoun v. Rane, 234 Ill. App. 3d 90, 95, 599 N.E.2d 1318, 1321 (Ill. App. Ct. 1 Dist. 1992)); Owens v. McDermott, Will & Emery, 316 Ill. App. 3d 340, 351, 736 N.E.2d 145, 155 (Ill. App. Ct. 1 Dist. 2000) ("Generally, a claim against an attorney for breach of fiduciary duty falls under the rubric of professional malpractice."). Thus, the breach of fiduciary duty claims in Count III of the Complaint should be dismissed since they are duplicative of the Wendts' claims for legal malpractice. 8 8 Obviously, this ground for dismissal is pleaded in the alternative with respect to the request to dismiss the Wendts' legal malpractice claims pursuant to Twombly. Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 12 of 17 13 D. The Wendts' Complaint Fails To Plead That The Claims Asserted Therein Were Filed Prior To The Expiration Of The Applicable Limitations Periods. Applicable statutes of limitations bar the claims set forth in the Wendts' Complaint. 735 ILCS 5/13-205 establishes a five-year statute of limitations for "actions on unwritten contracts, expressed or implied, . . . or to recover damages for an injury done to property, real or personal, . . . and all civil actions not otherwise provided for." Thus, the Wendts' claims for fraudulent misrepresentation, unjust enrichment, breach of fiduciary duty, accounting malpractice and civil conspiracy must have been brought within five years, or they are barred by the statute. As for the Wendts' remaining claims, a three-year statute of limitations governs the securities fraud claims and the claims for violation of the Illinois Consumer Fraud Act, pursuant to 28 U.S.C.A. § 1658(b) and 815 ILCS 505/10a(e) respectively, while a two-year statute of limitations applies to the Wendts' claims for legal malpractice under 735 ILCS 5/13-214.3. The investments at the heart of this dispute occurred in January 2003 when the Wendts' trust funds were invested in what the Complaint defines as the "Fixed Accounts." [See Complaint at ¶ 65.] Since this was over five years and five months prior to the date when this suit was filed, the Wendts filed beyond the expiration of all applicable limitations periods. See Indemnified Capital Investments, SA. v. R.J. O'Brien & Associates, Inc., 12 F.3d 1406, 1411-13 (7th Cir. 1993) (holding that claims under the ICFA are barred by the SOL where trading in the account at issue ceased more than three years prior to the filing of the complaint). HTD anticipates that the Wendts will seek to rely upon application of the "discovery rule" in order to avoid application of the relevant statutes of limitations. Under Illinois law, "[t]he plaintiff has the burden of pleading and proving the date of discovery when seeking to come within the 'discovery rule' exception to the statute of limitations." Society of Mount Carmel v. Fox, 90 Ill. App. 3d 537, 539, 413 N.E.2d 480, 482 (Ill. App. Ct. 2 Dist. 1980) (citations omitted); see also Waterford Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 13 of 17 14 Condominium Ass'n v. Dunbar Corp., 104 Ill. App. 3d 371, 376, 432 N.E.2d 1009, 1013 (Ill. App. Ct. 1 Dist. 1982) (affirming dismissal where claim not brought within applicable limitations period, noting that "it is incumbent upon a plaintiff seeking to take advantage of the discovery rule to plead in the complaint that the fraud remained undiscovered") (citations omitted). The Complaint fails to allege when the Wendts discovered the alleged conflicts which form the basis of all of their claims. As such, the discovery rule does not apply as a matter of law, and the Wendts' claims should be dismissed. Id. (holding that discovery rule was not applicable as a matter of law where plaintiffs failed to plead that fraud remained undiscovered). 9 CONCLUSION For the foregoing reasons, Defendants, Handler, Thayer & Duggan, LLC, James M. Duggan, Thomas J. Handler, Steven J. Thayer and Gregory Bertsch, respectfully request that all claims asserted against them in the Wendts' Complaint be dismissed. 9 In addition, once a party knows or should know of her injury, "the party is under an obligation to inquire further to determine whether an actionable wrong was committed." Hermitage Corp. v. Contractors Adjustment Co., 166 Ill. 2d 72, 86, 651 N.E.2d 1132, 1139 (Ill. 1995). Since the Wendts admit in the Complaint that they met representatives of all the entity defendants (HTD, Foster & Dunhill and Offshore Trust Service, Inc.) and of Fidelity Insurance Company Ltd. at a conference in May 2002, (see Complaint at ¶ 21), the Wendts should have been on notice of an affiliation between these entities at that point. Either they waived any conflicts resulting from any alleged affiliation, or they failed their duty of inquiry under the discovery rule, rendering it inapplicable. Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 14 of 17 15 DATED: September 2, 2008 Respectfully submitted, /s/Barbara B. Edelman Barbara B. Edelman Gwen R. Pinson Christopher M. Parenti (ARDC # 6256494) Dinsmore & Shohl LLP 250 West Main Street, Suite 1400 Lexington, KY 40507 Telephone: (859) 425-1000 Facsimile: (859) 425-1099 Edelman@dinslaw.com Gwen.Pinson@dinslaw.com Cparenti@dinslaw.com Attorneys for Defendants, Handler, Thayer & Duggan, LLC, James M. Duggan, Thomas J. Handler, Steven J. Thayer and Gregory Bertsch Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 15 of 17 16 CERTIFICATE OF SERVICE I hereby certify that on September 2, 2008, I electronically filed the foregoing Defendants’ Memorandum In Support Of Motion To Dismiss with the Clerk of the Court using the CM/ECF system, which sent e-mail notification of that filing to the following: Eric S. Rein Dykema Gossett PLLC 10 South Wacker Drive Suite 2300 Chicago, IL 60606 (312) 876-1700 erein@dykema.com Paul Richard Brown Chris C. Cramer Beresford Booth PLLC 145 Third Avenue, Suite 200 Edmonds, WA 98020 (425) 776-4100 paulb@beresfordlaw.com chrisc@beresfordlaw.com Attorneys for Plaintiffs, Dallen and Peggy Wendt Peter M. King William H. Jones Kasey M. Folk Canel, Davis & King 10 South LaSalle Street Suite 3400 Chicago, Il 60603 (312)372-4142 pking@daviskinglaw.com wjones@daviskinglaw.com kfolk@daviskinglaw.com Attorneys for Defendants, Foster & Dunhill Planning Services, LLC and Stephen P. Donaldson Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 16 of 17 17 Elaine S. Vorberg Law Offices of Elaine S. Vorberg 1821 Walden Office Square #400 Schaumburg, IL 60173 (847)397-9793 elaine@vorberglaw.com Attorney for Defendants, Sunderlage Resource Group, Inc. and Tracy J. Sunderlage John P. Buckley Dean J. Polales Seth Alexander Horvath Ungaretti & Harris LLP 3500 Three First National Plaza Chicago, IL 60602 (312) 977-4400 jpbuckley@uhlaw.com djpolales@uhlaw.com sahorvath@uhlaw.com Attorney for Defendants, Offshore Trust Service, Inc., Joshua J. Crithfield and Duane J. Crithfield /s/Barbara B. Edelman 94526_2 Case 1:08-cv-03612 Document 45-2 Filed 09/02/2008 Page 17 of 17 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 1 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 2 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 3 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 4 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 5 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 6 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 7 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 8 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 9 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 10 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 11 of 12 Case 1:08-cv-03612 Document 45-3 Filed 09/02/2008 Page 12 of 12