Yost v. Carroll
1:20-cv-05393
| N.D. Ill. | Jan 20, 2022Background
- Plaintiff R. David Yost sued defendant Morgan Carroll to collect on promissory notes totaling over $8 million that Yost gave to his daughter Anne and Carroll during their marriage.
- Carroll counterclaimed, alleging the transfers were actually gifts disguised as promissory notes to avoid gift taxes and that Yost never intended to enforce the notes.
- The notes purportedly stated repayment was owed "collectively and/or individually"; Yost allegedly told family the notes would be forgiven and not enforced and left instructions to even out gifts at his death.
- After Anne filed for divorce, Yost demanded payment; Carroll refused and asserted counterclaims including fraudulent misrepresentation, negligent misrepresentation, civil conspiracy, and an illegality defense (tax evasion/avoidance).
- Yost moved to dismiss Counts I–IV of the Counterclaim and Affirmative Defenses I–II. The court granted dismissal without prejudice and permitted repleading.
Issues
| Issue | Plaintiff's Argument (Yost) | Defendant's Argument (Carroll) | Held |
|---|---|---|---|
| Whether a promise not to enforce notes supports fraud/negligent misrepresentation | Statements that express future intent (promise not to enforce) are not actionable as fraud under Illinois law | The representations were part of a scheme to defraud (notes were mere tax-avoidance vehicles and Yost never intended enforcement) | Dismissed: statements about future intent are not actionable here; Carroll alleged a later change of mind rather than intent to defraud when made, so fraud/negligent misrep fails (dismissed without prejudice) |
| Whether the scheme exception saves a promissory-fraud claim | Promissory-fraud requires intent at the time of the promise; changed-mind cases are not promissory fraud | Carroll invokes the scheme exception (false promise used to accomplish fraud) | Held for Yost: pleadings show a change of mind (divorce prompted enforcement), so scheme exception inapplicable |
| Whether civil conspiracy claim is sufficiently pleaded | Conspiracy alleged to disguise gifts to evade taxes; enforcement of notes is the act in furtherance | Carroll says the notes and related acts were in furtherance of the illegal tax-evasion plan | Dismissed: conspiracy requires an underlying tortious act in furtherance; here the alleged act (enforcing notes) is the same issue as the failed fraud claim |
| Whether illegality/illicit-purpose defense and counterclaim adequately pled | Carroll alternates between alleging legal tax avoidance and illegal tax evasion; claims of illegality defeat enforcement | Carroll points to handwritten notes and statements to show illicit purpose | Dismissed as pleaded (ambiguity between avoidance and evasion); court allows repleading to clarify allegations |
Key Cases Cited
- United States v. Molina Healthcare of Illinois, Inc., 17 F.4th 732 (7th Cir. 2021) (motion-to-dismiss standards: accept well-pleaded facts and draw inferences for nonmovant)
- O'Brien v. Village of Lincolnshire, 955 F.3d 616 (7th Cir. 2020) (documents central to complaint may be considered on a motion to dismiss)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (complaint must state a plausible claim for relief)
- Steinberg v. Chicago Medical School, 69 Ill.2d 320 (Ill. 1977) (scheme exception where false promise forms part of fraudulent scheme)
- Ass'n Ben. Servs., Inc. v. Caremark RX, Inc., 493 F.3d 841 (7th Cir. 2007) (promissory fraud requires that promisor lacked intent to perform when promise was made)
- Tamayo v. Blagojevich, 526 F.3d 1074 (7th Cir. 2008) (pleading cannot contain irreconcilable factual inconsistencies)
- Cleveland v. Policy Management Sys. Corp., 526 U.S. 795 (1999) (inconsistent factual allegations can bar a claim)
- Epstein v. Epstein, 843 F.3d 1147 (7th Cir. 2016) (plaintiff can plead himself out of court by alleging facts that contradict the claim)
- Sabrina Roppo v. Travelers Commercial Ins. Co., 869 F.3d 568 (7th Cir. 2017) (addressing contradictory factual pleadings)
- Scott v. Aldi, Inc., 301 Ill. App. 3d 459 (Ill. App. Ct. 1998) (civil conspiracy requires tortious acts in furtherance of the agreement)
- Adcock v. Brakegate, Ltd., 164 Ill.2d 54 (Ill. 1994) (civil conspiracy elements and focus on tortious acts)
- First Midwest Bank, N.A. v. Stewart Title Guar. Co., 218 Ill.2d 326 (Ill. 2006) (duty requirement for negligent misrepresentation in purely economic-loss contexts)
- Turubchuk v. Southern Illinois Asphalt Co., Inc., 958 F.3d 541 (7th Cir. 2020) (duty element for negligent misrepresentation claims)
- Nelson v. City of Chicago, 992 F.3d 599 (7th Cir. 2021) (standards regarding leave to amend and repleading)