WEBB v. FRAWLEY: 7TH CIRCUIT EMPHASIZES THE IMPORTANCE OF PLEADING STANDARDS IN RECENT ILLINOIS CASE

The success of litigation depends not only on the facts of a case, but also how a case is pleaded. A seemingly meritorious claim can be dismissed where the claim is not carefully and deliberately plead to the court. This is especially true where a plaintiff’s claim involves an element of intent or fraud. The 7th Circuit reinforced the importance of meeting Federal pleading standards when it dismissed a recent Illinois case for failure to properly allege intent and fraud.

Jefferies LLC is a securities and investment banking firm that was looking to get into the trading of precious metals futures. Webb v. Frawley, No. 18-1607 (7th Cir. 2018) at 2.  In 2010, Defendant Frawley left his job as a precious metal trader at Newedge USA, LLC, to become the global head of metals trading at Jefferies. Id. Frawley convinced two other Newedge employees, Beversdorf and Webb, to leave and join him at Jefferies. Id. After they did so, Newedge sued Jefferies for poaching its employees. Id. at 3. Soon after receiving notice of the suit, Jefferies issued a policy stating that no precious metal futures would be traded while Newedge’s lawsuit was pending. Id. Frawley knew of this policy, but nevertheless he instructed Webb and Beversdorf to continue trading iron ore futures without informing them that Jefferies would not fulfill their trades under to its new policy. Id. at 4. Webb and Beversdorf eventually found out that none of their trades for iron ore futures were being fulfilled by Jefferies. Id. But it was too late, and both Beversdorf and Webb were fired due to their “poor performance and lack of production.” Id. at 5.

Both Beversdorf and Webb brought claims for tortious interference with contract and common-law fraud claims against Frawley. Frawley removed both suits from Illinois state court to the Northern District of Illinois. Id. at 6. The court eventually dismissed Beversdorf’s claim, finding that he had signed a form which compelled arbitration. Id. at 7. However, Webb did not sign an equivalent form, and thus his claim was allowed to proceed. Id. Frawley then moved to dismiss Webb’s claims. Id. The district court granted Frawley’s motion to dismiss, finding that Webb failed to state a claim for tortious interference with contract under Rule 12(b)(6), and that Webb’s common-law-fraud claims did not meet the heightened pleading standards for fraud under Rule 9(b). Id. Plaintiff appealed on both claims.

While the 7th Circuit disagreed with the district court’s analysis of Webb’s tortious interference claim, they ultimately affirmed the district court’s dismissal of Webb’s claim. See Id. 8-17. The district court had held that Frawley’s conduct fell within Illinois’s corporate-officer exception to tortious interference with contracts. Id. at 9-10. The corporate-officer exception recognizes that corporate officers’ ability to exercise their business judgment must be respected. Id. at 9. Thus, a corporate officer’s on-duty conduct will not be deemed tortious interference unless that conduct (i) is to further his own personal goals or hurt the injured party, and (ii) his/her actions are not in the best interest of the corporation. Id. The district court held that Frawley’s conduct fell within the corporate-officer exception because Webb failed to show that Frawley’s behavior was not in the best interest in Jefferies. Id. at 11. The 7th Circuit disagreed, and held that Jefferies had a clear policy not to engage in iron ore trading due to the Newedge litigation, and that Frawley’s disregard for that policy was against Jefferies’s best interest. Id. at 12-13. Thus, the corporate-officer exception does not apply here. Id. However, the 7th Circuit affirmed the district court’s dismissal of Webb’s tortious interference claim because such a claim requires a showing of intent, which Webb did not satisfy. Id. at 13-14.

As to Webb’s common-law-fraud claim, the 7th Circuit agreed with the district court that the complaint lacked specific-enough allegations of statements by Frawley which constituted misrepresentations. Id. at 17. Because Webb failed to identify any statement/direction that Frawley gave to him directing Webb to trade continue trading iron futures, Webb failed to meet Rule 9(b)’s heightened “who, what, when, where, how” standard. Id. at 18-19. Further, Webb failed to timely ask for leave to amend despite being given ample time to do so. Id. at 20. Thus, the district court did not abuse its discretion when it denied Webb’s motion for leave to amend his complaint. Id. Finally, the 7th Circuit addressed and denied Frawley’s motion for sanctions, holding that while Webb had alleged several unsuccessful claims, including the two addressed herein, his claims has at least a “plausible legal or factual basis”, making sanctions improper. Id. at 21-22.

 

Erin Borissov is a partner in the law firm of Parr Richey Frandsen Patterson Kruse with offices in Indianapolis and Lebanon, Indiana. She advises utilities and business clients in the areas of utility regulatory law, electric cooperative law, easement and right-of-way law, commercial transactions, corporate governance, and corporate compliance.

The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.