Hefferman, Glen v. Bass, Yale P. , 467 F.3d 596 ( 2006 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-2753
GLEN HEFFERMAN,
Plaintiff-Appellant,
v.
YALE P. BASS,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 04 C 5748—Paul E. Plunkett, Judge.
____________
ARGUED JANUARY 10, 2006—DECIDED OCTOBER 19, 2006
____________
Before BAUER, RIPPLE, and WOOD, Circuit Judges.
WOOD, Circuit Judge. This lawsuit arose out of a busi-
ness partnership that went sour. Glen Hefferman, John St.
Pierre, and attorney Yale P. Bass were all involved in an ill-
fated car wash venture. Hefferman contended that St.
Pierre stole $50,000 that Hefferman had invested in the car
wash and deprived him of the value of his legal interest in
the business; he also claimed that St. Pierre breached his
fiduciary duty, committed fraud, and breached a contract.
Bass, Hefferman charged, committed legal malpractice and
aided, abetted, or otherwise participated in St. Pierre’s
fraud and breach of fiduciary duty. The district court
entered a default judgment in Hefferman’s favor against St.
Pierre for $54,000. The court found, however, that
Hefferman had failed to state a claim against Bass.
2 No. 05-2753
Hefferman appeals the dismissal of his complaint against
Bass; St. Pierre is nowhere to be found and thus has not
challenged the default judgment against him. We reverse
and remand for further proceedings consistent with this
opinion.
I
When reviewing a dismissal under Rule 12(b)(6), we
present the facts in the light most favorable to Hefferman.
See County of McHenry v. Ins. Co. of the West, 438 F.3d 813,
817 (7th Cir. 2006). Hefferman is a former Illinois public
schoolteacher who has since relocated to California. In
2003, St. Pierre, one of his longtime acquaintances, ap-
proached him with a plan to become partners in a car wash
in Skokie, Illinois. At St. Pierre’s request, Hefferman
supplied about $25,000 for start-up costs, such as equip-
ment and a lease. Later on, Hefferman provided another
$25,000; Hefferman also worked at the car wash several
hours a day during the summer of 2003 without being paid.
In July 2003, St. Pierre took Hefferman to Bass’s office
and told Hefferman “that Bass would take care of the
legal paperwork.” At St. Pierre’s request, Hefferman paid
Bass’s legal fees, which came to more than a thousand
dollars. Hefferman “understood from what St. Pierre told
him that Bass was to represent both him and St. Pierre
in rendering these services.” Bass assured Hefferman,
“I’m your guy. I’ll make sure you’re protected and you get
what’s been agreed.” Hefferman contends that Bass did
no such thing. Not only did he fail to deliver on his prom-
ises, but he also prepared a release used to trick Hefferman
into relinquishing his interest in the business. St. Pierre
showed up at Hefferman’s house in the middle of the night
with that release and convinced Hefferman to sign it by
showing him only the second page, which stated that St.
Pierre indemnified and held Hefferman “harmless from any
liability” under the lease of the car wash building. But the
first page of the release, which Hefferman did not see when
No. 05-2753 3
he signed, indicated that Hefferman “had resigned as officer
and stockholder” of the car wash. In the summer of 2004,
not having received any profit on his investment nor a
salary for working in the business, Hefferman visited St.
Pierre and sought an accounting or the return of his
investment. St. Pierre refused, telling Hefferman that he
was not entitled to anything.
Hefferman sued St. Pierre and Bass under federal
diversity jurisdiction. (Although Hefferman recovered only
$54,000 in the default judgment, his original claim also
sought damages for the value of his interest in the business
and punitive damages; there is thus no reason to think that
it did not exceed $75,000.) St. Pierre defaulted, and Bass
moved to dismiss the claims against him under Federal
Rule of Civil Procedure 12(b)(6). The district court found
that Hefferman had failed to state any claim against Bass
and dismissed the case. Hefferman appeals.
II
A
The only issue before us is whether Hefferman’s second
amended complaint states a claim or claims against Bass.
We begin our analysis with a reminder about the standards
for evaluating a motion under Rule 12(b)(6). As we noted
earlier, we review the facts in the light most favorable to
Hefferman. No claim should be dismissed unless “it is clear
that no relief could be granted under any set of facts that
could be proved consistent with the allegations.” Hishon v.
King & Spalding, 467 U.S. 69, 73 (1984). See also McCready
v. EBay, Inc., 2006 WL 1881142, at *3 (7th Cir. July 10,
2006).
Rule 12(b)(6) does not stand alone. In Swierkiewicz v.
Sorema N.A., 534 U.S. 506 (2002), the Supreme Court
stated: “Rule 8(a)’s simplified pleading standard applies to
all civil actions, with limited exceptions. Rule 9(b), for
example, provides for greater particularity in all averments
4 No. 05-2753
of fraud or mistake. This Court, however, has declined to
extend such exceptions to other contexts.” Id. at 513. The
Court also underscored the fact that “[o]ther provisions of
the Federal Rules of Civil Procedure are inextricably linked
to Rule 8(a)’s simplified notice pleading standard.” Id. See
McDonald v. Household Int’l, Inc., 425 F.3d 424, 427 (7th
Cir. 2005). See also Bell Atlantic Corp. v. Twombly, 425
F.3d 99 (2d Cir. 2005), cert. granted, 126 S.Ct. 2965 (2006)
(presenting the question whether a claim under the
Sherman Act § 1, 15 U.S.C. § 1, requires heightened
pleading).
Rule 8(a) requires only “(1) a short and plain statement of
the grounds upon which the court’s jurisdiction depends . . .
, (2) a short and plain statement of the claim showing that
the pleader is entitled to relief, and (3) a demand for
judgment for the relief the pleader seeks.” As the Supreme
Court pointed out in Swierkiewicz, 534 U.S. at 511-14, and
as we reiterated in McDonald, “This is a notice pleading
standard, not a fact pleading standard.” 425 F.3d at 427.
The point of a notice pleading standard is that the plaintiff
is not required to plead either facts or legal theories. See
Marshall v. Knight, 445 F.3d 965, 968 (7th Cir. 2006);
Bartholet v. Reishauer A.G. (Zürich), 953 F.2d 1073, 1078
(7th Cir. 1992) (complaints do not need to match facts to
“elements” of a legal theory). See also Cler v. Ill. Educ.
Ass’n, 423 F.3d 726, 729 (7th Cir. 2005) (“In this regard, the
Supreme Court has cautioned that ‘[t]he Federal Rules
reject the approach that pleading is a game of skill in which
one misstep by counsel may be decisive to the outcome and
accept the principle that the purpose of pleading is to
facilitate a proper decision on the merits.’ ”) (quoting Conley
v. Gibson, 355 U.S. 41, 48 (1957)).
This notice pleading regime stands in contrast to the
fact pleading Illinois has adopted. “While the plaintiff is not
required to set forth evidence in the complaint, the plaintiff
must allege facts sufficient to bring a claim within a legally
recognized cause of action, not simply conclusions.” See
Marshall v. Burger King Corp., 2006 WL 1703488 (Ill. June
No. 05-2753 5
22, 2006) (Analysis section, ¶ 1) (internal citations omitted).
In Illinois, the plaintiff must set forth sufficient facts to
satisfy each element of a claim. See id. ¶ 2.
In this case, whether they meant to or not, both the
parties and the district court took an approach that resem-
bled the Illinois fact pleading rules far more than notice
pleading of Rule 8. The district court criticized Hefferman’s
pleadings under his legal malpractice claim for failing to
allege facts supporting each of the elements of the claim.
The court took the same approach with respect to
Hefferman’s theory that Bass had aided and abetted St.
Pierre’s swindling. But Rule 8 imposes no
such requirement. See Kirksey v. R.J. Reynolds Tobacco Co.,
168 F.3d 1039, 1041 (7th Cir. 1999). That this case was
brought under federal diversity jurisdiction, see 28 U.S.C.
§ 1332, and thus state law governs the substantive rights of
the parties, makes no difference. The Federal Rules of Civil
Procedure apply to all cases filed in federal court, no matter
what the basis of subject matter jurisdiction. See Hanna v.
Plumer, 380 U.S. 460 (1965). That fact makes Torres v.
Divis, 494 N.E.2d 1227 (Ill. App. 1986), which both
Hefferman and Bass discuss at length in their briefs, and
the other Illinois cases they mention, utterly irrelevant.
Torres is similar to this case in that it involves pleading in
a legal malpractice and breach of contract case, but it is
decided within the framework of Illinois’s fact pleading
rules and therefore inapplicable. In federal court under
Rule 8, the rules are simple: Notice is what counts. Not
facts; not elements of “causes of action”; not legal theories.
B
Regardless of what Hefferman may be able to prove at
a later stage of this litigation, Count IV of Hefferman’s
second amended complaint certainly gives notice of the
malpractice claim. Under Illinois law, legal malpractice
requires (1) an attorney-client relationship, (2) a negligent
act or breach, (3) proximate cause, and (4) damages. See
6 No. 05-2753
Webb v. Damisch, 842 N.E.2d 140, 146 (Ill. App. 2005). The
district court found that Hefferman had not properly
alleged two elements—the attorney-client relationship
and proximate cause. But from the point of view of notice,
rather than elements of a claim, this complaint said
more than enough: “Hefferman understood from what
St. Pierre told him that Bass was to represent both him and
St. Pierre in rendering these services”; “Bass then told Mr.
Hefferman that . . . ‘I’m your guy. I’ll make sure you’re
protected and you get what’s been agreed’ ”; “Bass then
asked Mr. Hefferman for an advance payment of fees . . .
and Mr. Hefferman there and then paid Bass several
hundred dollars”; “As Mr. Hefferman’s attorney, Bass owed
Mr. Hefferman the professional duties of, inter alia, candor,
honesty, loyalty and competence.” The complaint also
alleged that Bass’s breach of his fiduciary duties to
Hefferman caused Hefferman’s losses, stating in part that
“[b]ut for Bass’s breach of his fiduciary duties to Mr.
Hefferman . . . Mr. Hefferman would [ ] have been able to
protect his interest in the Skokie car wash and would not
have lost his share of the ongoing and future profits of that
business.” While at some later stage of the litigation, it
might turn out that the facts show that Bass had an
attorney-client relationship only with the car wash itself,
not with Hefferman (as the district court concluded), that
conclusion cannot be drawn if one looks at the pleadings in
the light most favorable to Hefferman. Indeed, the district
court itself recognizes that “[c]onceivably, the complaint
could be read to require that Bass look after the interests of
both shareholders and company so long as there was no
conflict of interest.” See, e.g., Manion v. Nagin, 394 F.3d
1062, 1069 (8th Cir. 2005) (finding that the pleadings left
open a question about who exactly was represented by the
attorney accused of malpractice).
We recognize that there is always some danger when a
plaintiff puts facts in her complaint that she may plead
herself out of court, because the facts pleaded preclude
recovery. See McCready, 2006 WL 1881142, at *4.
No. 05-2753 7
Hefferman, however, did not fall into that trap. The district
court dismissed Hefferman’s claims because of the absence
of facts that demonstrated his potential to recover, not
because the facts pleaded were inconsistent with recovery.
In the absence of a pleading that clearly precludes a claim,
“[a]t this stage of the litigation, we are concerned not with
what plaintiff did or did not show, but rather with what
plaintiff did or did not allege.” Brown v. Budz, 398 F.3d 904,
914 (7th Cir. 2005). Regardless of what he may prove later,
Hefferman satisfied Rule 8’s requirement that he provide
notice of his malpractice claim.
C
The adequacy of Hefferman’s allegations with respect
to his aiding and abetting claim in Count V presents a more
difficult question. Hefferman alleges that Bass aided and
abetted St. Pierre in both St. Pierre’s breach of fiduciary
duties and in St. Pierre’s fraud. In the first place, Bass
argues that as a matter of law this circuit does not recog-
nize aiding and abetting as a tort, citing Eastern Trading
Co. v. Refco, Inc., 229 F.3d 617, 623 (7th Cir. 2000), and
Cenco Inc. v. Seidman & Seidman, 686 F.2d 449, 452-53
(7th Cir. 1982). Bass is technically correct but misses the
point. What these opinions say is that aiding and abetting
is a theory for holding the person who aids and abets liable
for the tort itself; the rejection of aiding and abetting as an
independent tort is not the same thing as saying that there
is never liability for aiding and abetting. See Refco, 229
F.3d at 624 (“Law should be kept as simple as possible. One
who aids and abets a fraud is guilty of the tort of fraud
(sometimes called deceit); nothing is added by saying that
he is guilty of the tort of aiding and abetting as well or
instead.”); Cenco, 686 F.2d at 453 (“Anyone who would be
guilty in a criminal proceeding of aiding and abetting a
fraud would be liable under tort law as a participant in the
fraud, since aider-abettor liability requires participation in
the criminal venture.”). Furthermore, this is a diversity
8 No. 05-2753
case, governed by the law of Illinois. See generally Erie
Railroad Co. v. Tompkins, 304 U.S. 64 (1938). Recent
Illinois decisions recognize aiding and abetting liability.
Under Illinois law, to state a claim for aiding and abetting,
one must allege (1) the party whom the defendant aids
performed a wrongful act causing an injury, (2) the defen-
dant was aware of his role when he provided the assistance,
and (3) the defendant knowingly and substantially assisted
the violation. See Thornwood, Inc. v. Jenner & Block, 799
N.E.2d 756, 767 (Ill. App. 2003). To the extent that the
question is whether Hefferman adequately alleged that
Bass aided and abetted St. Pierre’s breach of his fiduciary
duty, we look again to Rule 8. Once again, we conclude that
the complaint provided sufficient notice to Bass.
To the extent that the claim is that Bass aided and
abetted St. Pierre in committing fraud, however, there is a
higher pleading standard. Federal Rule of Civil Procedure
9(b) provides, “In all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated
with particularity.” This is a heightened pleading standard,
which requires more than the plain statement of the claim
of Rule 8. Rule 9(b) requires that facts such as “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 to the
plaintiff” be alleged in detail. Bankers Trust Co. v. Old
Republic Ins. Co., 959 F.2d 677, 683 (7th Cir. 1992) (quoting
Sears v. Likens, 912 F.2d 889, 893 (7th Cir. 1990)). In
contrast, even under Rule 9(b) “[m]alice, intent, knowledge,
and other condition of mind of a person may be averred
generally.” Furthermore, Rule 9(b) does not require a
plaintiff to demonstrate that a representation was indeed
false. Bankers Trust Co., 959 F.2d at 683.
In this case, Hefferman’s complaint adequately iden-
tifies the person making the misrepresentation—St. Pierre.
We also have the time, the place, and the content of the
misrepresentation. According to the complaint, the time
was “some time in late August or early September” 2003
No. 05-2753 9
“late at night—it was after midnight.” The place was
Hefferman’s home in Chicago. The misrepresentation
was St. Pierre’s statement that the release, an unsigned
copy of which Hefferman attached to the complaint, only
gave St. Pierre sole responsibility for the car wash build-
ing lease as opposed to control over Hefferman’s interest in
the business itself. The manner in which it was communi-
cated was orally by St. Pierre to Hefferman at that middle-
of-the-night meeting. Indeed, there are multiple misrepre-
sentations alleged in Hefferman’s complaint; this is merely
the central one. The district court found that Hefferman
sufficiently alleged that Bass aided St. Pierre and that St.
Pierre committed a wrongful act, but that “nothing in the
allegations even suggests that Bass knew (as opposed to
should have known) either that St. Pierre was engaged in
a fraud or that Bass willingly joined in his scheme.” That
point, however, relates to Bass’s “knowledge” or “condition
of mind,” which as noted above Rule 9(b) permits to be
alleged generally. The complaint does just that, when it
says that “Bass’s participation in St. Pierre’s fraud and
breach of fiduciary duty was knowing and intentional.”
Furthermore, the complaint also specifically identifies the
assistance provided—the drafting of the release itself. Thus,
to the extent that Hefferman’s claims against Bass turn on
fraud, we find that Hefferman’s complaint satisfies Rule
9(b).
III
For these reasons, the judgment of the district court
is REVERSED and this case is REMANDED to the district court
for proceedings consistent with this opinion.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-19-06