759 F.3d 779
7th Cir.2014Background
- In 1997–98 Fortunee Massuda invested $4 million for ~11% of Enterprises, which wholly owned PE Chicago; PE Chicago held a 50% interest in an RC Partnership that operated Panda Express restaurants.
- In 2006 Panda secretly bought PE Chicago’s 50% RC Partnership interest from Rezko for $9.7M, paid $3.25M to Rezko personally, and never paid PE Chicago; Massuda (an indirect minority investor) was not informed.
- Rezko was later indicted and convicted on federal fraud/bribery charges; related litigation (Sirazi v. Panda defendants) resulted in judgments and a later settlement in which PE Chicago released claims.
- Massuda sued Rezko’s entities and the Panda defendants claiming unjust enrichment, fraud, conspiracy, and aiding/abetting breach of fiduciary duty; the district court dismissed most counts as derivative and dismissed fraud for failure to plead with Rule 9(b) particularity.
- Massuda appealed; the Seventh Circuit reviewed de novo under Delaware law for LLC/derivative issues and affirmed dismissal with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether unjust enrichment claim is direct or derivative | Massuda: she was cheated out of the value of PE Chicago’s 50% RC interest and thus has a direct claim | Defendants: the immediate injury was to PE Chicago; any recovery belongs to the company first | Derivative — claim belongs to PE Chicago, not Massuda individually; dismissed |
| Whether fraud claims were sufficiently pleaded and direct | Massuda: defendants made false statements/omissions (including telling her her interest was "worthless") and concealed the sale, causing her direct harm | Defendants: fraud claims fail because any injury is derivative and Massuda did not plead intent, reliance, damages, or a duty to disclose with specificity | Dismissed — most fraud allegations derivative; remaining fraud theories failed Rule 9(b) and elements (no pleaded reliance/intent/duty) |
| Whether conspiracy to defraud is direct | Massuda: Panda conspired with Rezko to defraud PE Chicago and its investors, including her | Defendants: the conspiracy harmed PE Chicago directly; Massuda’s injury is derivative | Derivative — dismissed |
| Whether aiding and abetting breach of fiduciary duty can be direct (Gentile theory) | Massuda: Panda aided Rezko’s breaches and should be liable directly (invoking Gentile) | Defendants: the harm was to PE Chicago; Massuda did not allege voting‑power dilution or a distinct injury to members | Held: Aiding/abetting claim is derivative here; Gentile recognized a narrow circumstance (voting‑power/economic dilution to minority) giving a direct claim, which Massuda did not allege |
Key Cases Cited
- Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) (test for distinguishing direct vs. derivative shareholder claims)
- Gentile v. Rossette, 906 A.2d 91 (Del. 2006) (minority shareholders may have a direct claim where a transaction both dilutes voting power and transfers economic value to controlling shareholder)
- Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012) (elements for fraudulent concealment under Illinois law)