Coexist Found., Inc. v. Fehrenbacher

COEXIST FOUNDATION, INC. Plaintiff, v. AMY FEHRENBACHER, MICHAEL, FEHRENBACHER, JOHN LACART,UNITED FUNDING, INC., MWF FINANCIAL & MORTGAGE CENTER, INC.,MIDWEST FUNDING BANKCORP, INC., and UNITED TITLE OF ILLINOIS, INC. Defendants.

Case No. 11 cv 6279

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

Date: March 28, 2014

Judge Sharon Johnson Coleman

MEMORANDUM OPINION AND ORDER

This matter is before the court on defendants Michael Fehrenbacher and MWF Financial & Mortgage Center, Inc.'s (collectively, "Defendants") motion for summary judgment. For the reasons stated in this order, Defendants' motion is granted in part and denied in part.

Background

For the purposes of this motion, the Court takes the following facts as true.¹ Plaintiff Coexist Foundation, Inc. is a Florida corporation operated by counter-defendant Timothy Hubman.² In March 2009, Hubman and Fehrenbacher met and began discussing various lucrative investment opportunities. The parties initially exchanged phone calls and emails, but also met in person at Fehrenbacher's office in Illinois.

In April 2009, Hubman transferred a total of $300,000 from Coexist's account in Florida to an escrow account at Harris Bank in Illinois maintained by Fehrenbacher. At Hubman's request, Fehrenbacher subsequently transferred $150,000 back to Coexist's account in Florida. Sometime in June 2009, Hubman obtained $1.85 million from a third party and promised hewould hold the funds in escrow. On June 19, Hubman transferred the $1.85 million to Harris Bank. Fehrenbacher subsequently invested Coexist's $2 million with Assured Capital Consultants, LLC ("Assured Capital"), which was later discovered to be an illegal Ponzi scheme.

On December 14, 2010, Coexist filed an 11-count complaint in Florida state court against seven defendants, including Fehrenbacher and MWF. The action was removed to the Middle District of Florida based on diversity jurisdiction and all defendants moved to dismiss based on lack of personal jurisdiction and improper forum. Coexist subsequently voluntarily dismissed its claims against all defendants except Fehrenbacher and MWF. After an evidentiary hearing on jurisdiction, the case was transferred to the Northern District of Illinois based on forum non conveniens.

In sum, Coexist's complaint alleges Fehrenbacher fraudulently induced Hubman to transfer funds to Harris Bank and then transferred Coexist's funds to Assured Capital in violation of various Florida state laws. Defendants Fehrenbacher and MWF now move for summary judgment on Counts IV-XI.

Legal Standard

A party is entitled to summary judgment if all of "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The Court construes the facts and all reasonable inferences in the light most favorable to the nonmoving party when deciding a motion for summary judgment. Abdullahi v. City of Madison, 423 F.3d 763, 773 (7th Cir. 2005).

The moving party bears "the initial responsibility of informing the...court of the basis for its motion, and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The party who bears the burden of proof on an issue may not rest on the pleadings or mere speculation, but must affirmatively demonstrate that there is a genuine issue of material fact that requires a trial to resolve. Id. at 324. "A party will be successful in opposing summary judgment only when it presents definite, competent evidence to rebut the motion." Albiero v. City of Kankakee, 246 F.3d 927, 932 (7th Cir. 2001). In considering a motion for summary judgment, the Court may not weigh the evidence or engage in fact-finding, but shouldsimply determine whether there is a genuine issue for trial. Hasan v. Foley & Lardner, LLP, 552 F.3d 520, 527 (7th Cir. 2008).

Discussion

Coexist alleges eight claims against Defendants, including: fraud in the inducement (IV), conspiracy to commit fraud in the inducement (V), civil theft (VI), and violations of the Florida Securities and Investor Protection Act (VII and VIII), the Florida Deceptive and Unfair Trade Practices Act (IX), and the Florida Uniform Fraudulent Transfer Act (X and XI). Coexist concedes that summary judgment is proper as to Counts IX and XI (Dkt. #118, p. 8) and Defendants' motion is therefore granted as to those claims.

1. Coexist's Fraud Claims

As an initial matter, the Court must determine what state law applies to Coexist's fraud claims. Where, as here, a case is transferred pursuant to 28 U.S.C.A. §1404(a), the court applies the choice of law rules of the state from which case was transferred.³ Piper Aircraft Co. v. Reyno, 454 U.S. 235, 244 (1981). Therefore, Florida's choice of law rules govern this action. In tort actions involving more than one state, Florida courts apply the 'most significant relationship' test as set forth in the Restatement (Second) of Conflict of Laws §145, which provides specific sections for particularized torts. Trumpet Vine Investments, N.V. v. Union Capital Partners I, Inc., 92 F.3d 1110, 1118 (11th Cir. 1996).

With respect to fraud, "when the plaintiff's action in reliance took place in the state where the false representations were made and received, the local law of this state determines the rights and liabilities of the parties." Restatement (Second) Conflict of Laws §148(1). However, "[w]hen the plaintiff's action and reliance took place in whole or in part in a state other than that where the false representations were made," the court applies a six-factor balancing test. Id. at §148(2); see Valentino v. Bond, 2008 WL 3889603, *9 (N.D. Fla. Aug. 19, 2008). The factors include the place or places where the defendant made the representations, where the plaintiff received and acted in reliance upon the defendant's representations, where the tangible thing which is the subject of the transaction between the parties was situated at the time and where the parties are domiciled. Id.

Hubman and Fehrenbacher communicated primarily by phone and email, but also met several times in person at Fehrenbacher's office in Illinois. Nearly all of Fehrenbacher emails were sent from Illinois and the Court reasonably infers that Hubman received and acted in reliance in both Illinois and Florida. In April and June of 2009, funds were transferred between Coexist's account in Florida and Defendants' account in Illinois. While both Florida and Illinois share contacts with this case, the Court finds that Illinois - as the situs of nearly all of Fehrenbacher's alleged representations and, to some degree, Hubman's receipt of and reliance on Fehrenbacher's representations - has the most significant relationship to the case. Therefore, Illinois law applies to Coexist's fraud claims.

Count IV of Coexist's complaint alleges a claim of fraud in the inducement. In Illinois, fraud in the inducement is a form of common-law fraud. Petrakopoulou v. DHR Int'l, Inc., 590 F. Supp. 2d 1013, 1016 (N.D. Ill. 2008) (citing Lagen v. Balcor Co., 274 Ill.App.3d 11, 17 (2nd Dist. 1995)). The elements of fraud are: 1) a false statement of material fact; 2) knowledge or belief by the maker that the statement was false; 3) an intent to induce reliance on the statement; 4) reasonable reliance upon the truth of the statement; and 5) damages resulting from that reliance. Id. Defendants argue they are entitled to summary judgment as a matter of law because Coexist fails to identify any false statement upon which Hubman reasonably relied. The Court agrees.

During the relevant time period, Fehrenbacher owned an escrow company and was in the process of forming a bank. Coexist admits that Hubman "did prudently research the investment." (Dkt. #113, p. 5.) Hubman alleges he relied on emails from Fehrenbacher which led him to believe that the funds were not at risk, would not leave Harris Bank and could be withdrawn at any time. Specifically, Hubman claims he relied on Fehrenbacher's reference to an MT 760. An MT 760 is a type of inter-bank message used to transmit standby letters of credit from one bank to another. See 6B Hawkland UCC Series § 5-104:12 [Rev]. Hubman did his own research on MT 760s after Fehrenbacher used the term and understood it to mean that his funds were not at risk and would never leave the escrow account. After researching what an MT 760 was, Hubman appears to have misunderstood its meaning and effect.

Coexist also claims that Hubman relied on conversations and emails with Fehrenbacher in forming his opinion of the investment. (Dkt. #113-2, ¶7.) Be that as it may, Coexist fails to identify for the Court any specific conversations with or emails from Fehrenbacher which areeven remotely contemporaneous with the transfer of Coexist's funds. "Summary judgment may only be defeated by pointing to admissible evidence in summary judgment record that creates a genuine issue of material fact." Perrywatson v. United Airlines, Inc., 916 F. Supp. 2d 866 (N.D. Ill. 2013) aff'd sub nom. Perrywatson v. United Air Lines, Inc., 527 F. App'x 559 (7th Cir. 2013) (citing Fed.R.Civ.P. 56). It is not the Court's job to scour the record and make a plaintiff's case for him. Id.; Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994) ("summary judgment is not a paper trial, the district court's role in deciding the motion is not to sift through the evidence, pondering the nuances and inconsistencies, and decide whom to believe"). Coexist thus fails to raise a genuine issue of fact for trial and its claim for fraud in the inducement fails. Poole v. U.S. Gen. Accounting Office, 1 F. App'x 508, 510 (7th Cir. 2001) (plaintiff who fails to cite to specific...