483 F.Supp.3d 577
N.D. Ill.2020Background
- Mark Nicholls formed Turf Industry companies and TIH as a holding/investment vehicle; Sid Nicholls was majority owner of Turf Nation (a supplier) but not a TIH officer, director, or shareholder.
- David Diamond invested in TIH in 2014 (two equity purchases) and again in Feb. 2016 (convertible notes); he later served as TIH Director of Business Investment.
- In October 2014 Mark (under time pressure to close a separate AWP investor deal) drafted and backdated supply agreements between UBU and Turf Nation/Turfstore; Sid signed the Turf Nation agreement but terminated it in November 2014 by sending a 30‑day notice to Mark’s Ontario address.
- Diamond alleges the backdated/forged supply agreements induced investment (particularly his 2016 note purchase) and that Sid participated in fraud, breach of fiduciary duty schemes, and securities law violations.
- Sid moved for summary judgment on all claims and for Rule 11 sanctions; the court found no evidence Sid made representations to Diamond or knowingly aided any scheme to induce Diamond’s 2016 investment, granted summary judgment for Sid on all claims, and denied the Rule 11 motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Illinois Securities Law (815 ILCS 5/13) | Sid was a "controlling person" or a person on whose behalf the sale was made because Mark needed investor funds to pay Sid/Turf Nation. | Sid was not issuer, underwriter, dealer, salesperson, or controller of TIH and did not participate in selling TIH securities. | Sid is not a proper defendant under the Illinois Securities Law; summary judgment for Sid. |
| Conspiracy to Breach Fiduciary Duty | Sid conspired with Mark by creating/backdating supply agreements to induce investments (including Diamond’s 2016 note). | Sid only assisted in securing AWP investors in 2014 and did not know or intend to induce Diamond’s 2016 investment. | No evidence Sid knowingly joined or furthered a scheme to breach fiduciary duties owed to Diamond; summary judgment for Sid. |
| Aiding & Abetting Breach of Fiduciary Duty | Sid knowingly and substantially assisted Mark’s inducement of Diamond’s 2016 investment via the supply agreements and related conduct. | Sid lacked awareness that his actions would help induce Diamond in 2016 and did not substantially assist that transaction. | Plaintiff failed to show Sid’s knowledge and substantial assistance with respect to the 2016 investment; summary judgment for Sid. |
| Common‑law Fraud | The Turf Nation Supply Agreement (and Sid’s role signing/backdating it) was a false representation inducing Diamond’s reliance and loss. | Sid made no representations to Diamond, and Diamond cannot show he relied on any representation by Sid. | No evidence Sid made any actionable misrepresentation to Diamond; summary judgment for Sid. |
| Conspiracy to Defraud | Sid and Mark conspired to defraud TIH investors (including Diamond) by fabricating/backdating supply agreements. | Sid acted to close AWP financing and later terminated the agreement upon learning insolvency; he did not intend to defraud Diamond. | No evidence Sid intended to defraud Diamond or knew his acts would induce Diamond’s 2016 investment; summary judgment for Sid. |
| Rule 11 Sanctions | Sid contends Diamond’s pleadings repeated unsupported allegations and were filed for improper purposes (revenge, leverage, publicity). | Diamond says claims were colorable, pursued in good faith, and counsel reasonably relied on evidence and discovery. | Court denied sanctions: though claims failed on summary judgment, they were not so devoid of factual support nor shown to be filed for sanctionable improper purpose. |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden-shifting framework)
- Anderson v. Liberty Lobby, 477 U.S. 242 (standard for genuine issue of material fact)
- Excalibur Oil, Inc. v. Sullivan, 616 F. Supp. 458 (N.D. Ill. 1985) (interpretation of parties liable under Illinois Securities Law)
- Froehlich v. Matz, 93 Ill. App. 3d 398 (control‑person participation required to impose liability under Illinois Act)
- Jacobs v. James, 215 Ill. App. 3d 499 (control person liability where actor voted to sell securities)
- Adcock v. Brakegate, Ltd., 164 Ill.2d 54 (civil conspiracy requires knowing, voluntary participation)
- Thornwood, Inc. v. Jenner & Block, 344 Ill. App. 3d 15 (elements for aiding and abetting a fiduciary breach under Illinois law)
- Mars Steel Corp. v. Cont'l Bank N.A., 880 F.2d 928 (Rule 11: suit filed for improper purpose is sanctionable)
- Brown v. Federation of State Medical Boards, 830 F.2d 1429 (court may consider subjective bad faith under Rule 11)