No. 13-2818 UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT Dr. Fortunee ...

129 Pages·2013·2.73 MB·English

Case: 13-2818 Document: 23-1 Filed: 11/12/2013 Pages: 40 (1 of 129)

No. 13-2818

UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

Dr. Fortunee Massuda,
Plaintiff-Appellant

v.

Panda Express, Inc., Panda Restaurant Group, Inc., Citadel-Panda Express, Inc., Andrew Cherng
and Peggy Cherng,
Defendants-Appellees

Appeal From The United States District Court
For the Northern District of Illinois, Eastern Division
Case No. 12 CV 9683
The Honorable Ronald A. Guzman

BRIEF OF THE DEFENDANTS-APPELLEES
PANDA EXPRESS, INC., PANDA RESTAURANT GROUP, INC., CITADEL-PANDA
EXPRESS, INC., ANDREW CHERNG, AND PEGGY CHERNG

GIBSON, DUNN & CRUTCHER LLP
Theodore J. Boutrous Jr.
Christopher D. Dusseault
Alexander K. Mircheff
333 South Grand Avenue
Los Angeles, California 90071
[phone]

EDWARDS WILDMAN PALMER LLP
Michael Docketerman
William R. Lee
Tanya H. Miari
225 West Wacker Drive, Suite 3000
Chicago, Illinois 60606
[phone]
Attorneys for Defendants-Appellees
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CIRCUIT RULE 26.1 DISCLOSURE STATEMENT

The undersigned, counsel of record for Defendants-Appellees Panda Express, Inc., Panda
Restaurant Group, Inc., Citadel-Panda Express, Inc., Andrew Cherng, and Peggy Cherng,
furnishes the following list in compliance with Circuit Rule 26.1:
(1) The full name of every party that the attorney represents in the case:
Panda Express, Inc., Panda Restaurant Group, Inc., Citadel-Panda Express, Inc., Andrew
Cherng, and Peggy Cherng
(2) The names of all law firms whose partners or associates have appeared for the
party in the case (including the proceedings in the district court or before an
administrative agency) or are expected to appear for the party in this court:
GIBSON, DUNN & CRUTCHER LLP; EDWARDS WILDMAN PALMER LLP
(3) If the party or amicus is a corporation, i) Identify its parent corporations, if any:
Panda Express, Inc. and Citadel Panda Express, Inc. are wholly owned subsidiaries of
Panda Restaurant Group, Inc. (“PRG”). PRG is a subsidiary of Andrew and Peggy Cherng
Family Company.
ii) Any publicly held company that owns 10% or more of the party’s or amicus’ stock:
None.
/s/ Christopher D. Dusseault
Christopher D. Dusseault
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, California 90071
[phone]

/s/ Michael Docketerman
Michael Docketerman
EDWARDS WILDMAN PALMER LLP
225 West Wacker Drive, Suite 3000
Chicago, Illinois 60606
[phone]
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TABLE OF CONTENTS
I. JURISDICTIONAL STATEMENT ................................................................................... 1
II. STATEMENT OF ISSUES ................................................................................................ 1
III. STATEMENT OF THE CASE ........................................................................................... 2
IV. STATEMENT OF FACTS ................................................................................................. 4
A. Background ............................................................................................................. 4
B. The Instant Allegations ........................................................................................... 6
C. The District Court’s Order ...................................................................................... 8
V. SUMMARY OF ARGUMENT ........................................................................................ 10
VI. ARGUMENT .................................................................................................................... 11
A. The District Court Correctly Dismissed the Claims Plaintiff Asserts
Because They Are Derivative And Were Released By PE Chicago. ................... 11
1. The Claims Are Derivative Under Tooley. ............................................... 11
2. Gentile Does Not Change the Claims’ Derivative Characterization. ....... 14
3. PE Chicago Settled and Released the Claims. .......................................... 18
B. The District Court Was Well Within Its Discretion to Reject Judicial
Estoppel................................................................................................................. 20
1. PE Chicago’s Claims Were Addressed on the Merits. ............................. 21
2. Defendants’ Arguments Have Been Entirely Consistent. ......................... 23
C. The District Court Properly Dismissed Plaintiff’s Fraud Claim For Failure
To Adequately Plead Intent, Reliance, and Damages. .......................................... 25
D. Leave to Amend Should be Denied. ..................................................................... 29
VII. CONCLUSION ................................................................................................................. 31
i
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TABLE OF AUTHORITIES
Cases
Agostino v. Hicks,
845 A.2d 1110 (Del. Ch. 2004) ................................................................................................ 24
Allied Artists Pictures Corp. v. Baron,
413 A.2d 876 (Del. 1980) ......................................................................................................... 18
Ashcroft v. Iqbal,
556 U.S. 662 (2009) .................................................................................................................. 29
Avacus Partners, L.P. v. Brian,
1990 WL 161909 (Del. Ch. Oct. 24, 1990) .............................................................................. 14
B A Mortg. & Int’l Realty Corp. v. Taylor,
No. 84 C 7739, 1985 WL 1703 (N.D. Ill. June 7, 1985) .......................................................... 27
Beckham v. Keith,
2011 WL 9557991 (Mass. Super. Ct. June 15, 2011) ............................................................... 17
Boland v. Engle,
113 F.3d 706 (7th Cir. 1997) .................................................................................................... 30
Borsellino v. Goldman Sachs Group, Inc.,
477 F.3d 502 (7th Cir. 2007) .................................................................................................... 26
Braddock v. Zimmerman,
906 A.2d 776 (Del. 2006) ......................................................................................................... 19
Connick v. Suzuki Motor Co.,
675 N.E.2d 584 (Ill. 1996) ........................................................................................................ 27
Cyrus v. Town of Mukwonago,
624 F.3d 856 (7th Cir. 2010) .................................................................................................... 27
Economy Folding Box Corp. v. Anchor Frozen Foods Corp.,
515 F.3d 718 (7th Cir 2008) ..................................................................................................... 14
Elf Atochem N. Am. v. Jaffari,
727 A.2d 286 (Del. 1999) ......................................................................................................... 12
Farnham v. Windle,
918 F.2d 47 (7th Cir. 1990) ...................................................................................................... 30
Feldman v. Cutaia,
951 A.2d 727 (Del. 2008) ....................................................................................... 12, 13, 16, 17
ii
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Feldman v. Cutaia,
956 A.2d 644 (Del. Ch. 2007) .................................................................................................. 17
For Your Ease Only, Inc. v. Calgon Carbon Corp.,
560 F.3d 717 (7th Cir. 2009) .................................................................................................... 28
G & S Holdings LLC v. Cont’l Cas. Co.,
697 F.3d 534 (7th Cir. 2012) .................................................................................................... 12
Gatz v. Ponsoldt,
925 A.2d 1265 (Del. 2007) ....................................................................................................... 16
Gentile v. Rossette,
906 A.2d 91 (Del. 2006) ................................................................................... 10, 14, 15, 16, 17
In re CD Liquidation Co.,
462 B.R. 124 (D. Del. Bnkpcy. 2011) ...................................................................................... 17
In re First Interstate Bancorp Consol. S’holder Litig.,
729 A.2d 851 (Del. Ch. 1998) ............................................................................................ 13, 18
In re Knight-Celotex, LLC,
695 F.3d 714 (7th Cir. 2012) .................................................................................................... 20
In re NYMEX S’holder Litig.,
2009 WL 3206051 (Del. Ch. Sept. 30, 2009) ........................................................................... 13
Innovative Therapies, Inc. v. Meents,
No. DKC 12-3309, 2013 WL 2919983 (D. Md. June 12, 2013) .............................................. 17
Int’l Mktg., Ltd. v. Archer-Daniels-Midland Co.,
192 F.3d 724 (7th Cir. 1999) .................................................................................................... 30
Joe W. & Dorothy Dorsett Brown Foundation v. Frazier Healthcare V, L.P.,
889 F. Supp. 2d 893 (W.D. Tex. 2012) .................................................................................... 17
Kennedy v. Four Boys Labor Servs. Inc.,
664 N.E.2d 1088 (Ill. App. Ct. 1996) ....................................................................................... 29
Kramer v. W. Pac. Indus., Inc.,
546 A.2d 348 (Del. 1988) ............................................................................................. 12, 13, 14
Loral Space & Communications, Inc. v. Highland Crusader Offshore Partners, L.P.,
977 A.2d 867 (Del. 2009) ......................................................................................................... 16
Metro. Life Ins. Co. v. Tremont Grp. Holdings, Inc.,
No. Civ. A. 7092–VCP, 2012 WL 6632681 (Del. Ch. Dec. 20, 2012) ........................ 13, 18, 24
iii
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Nikoonahad v. Greenspun Corp.,
No. C09-02242, 2010 WL 1268124 (N.D. Cal. Mar. 31, 2010) ............................................... 17
Nunez-Moron v. Holder,
702 F.3d 353 (7th Cir. 2012) .................................................................................................... 19
Ogden Martin Sys. of Indianapolis, Inc. v. Whiting Corp.,
179 F.3d 523 (7th Cir. 1999) .................................................................................................... 21
Pontarelli Limousine, Inc. v. City of Chicago,
929 F.2d 339 (7th Cir. 1991) .............................................................................................. 23, 25
Prime Leasing Inc. v. Kendig,
773 N.E.2d 84 (Ill. 2002) .................................................................................................... 27, 28
Ravenswood Inv. Co., L.P. v. Winmill,
No. Civ. A. No. 3730–VCN, 2011 WL 2176478 (Del. Ch. May 31, 2011) ............................. 13
Rhodes v. Silkroad Equity, LLC,
No. Civ. A. 2133-VCN, 2007 WL 2058736 (Del. Ch. July 11, 2007) ..................................... 16
Swanson v. Citibank, N.A.,
614 F.3d 400 (7th Cir. 2010) .................................................................................................... 26
Tooley v. Donaldson, Lufkin & Jenrette, Inc.,
845 A.2d 1031 (Del. 2004) ........................................................................... 1, 12, 13, 14, 23, 24
Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP,
475 F.3d 824 (7th Cir. 2007) .............................................................................................. 26, 27
United States v. Christian,
342 F.3d 744 (7th Cir. 2003) .................................................................................................... 23
VGS, Inc. v. Castiel,
2003 WL 723285 (Del. Ch. Feb. 23, 2003) .............................................................................. 12
Wells v. Coker,
707 F.3d 756 (7th Cir. 2013) .................................................................................................... 21
Wigod v. Wells Fargo Bank, N.A.,
673 F.3d 547 (7th Cir. 2012) .................................................................................................... 27
Wilkinson v. Appleton,
190 N.E.2d 727 (Ill. 1963) ........................................................................................................ 28
Young v. Verizon’s Bell Atl. Cash Balance Plan,
667 F. Supp. 2d 850 (N.D. Ill. 2009) ........................................................................................ 21
iv
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Statutes
28 U.S.C. § 1291 ........................................................................................................................... 30
28 U.S.C. § 1292 ........................................................................................................................... 30
740 Ill. Comp. Stat. 160/2(c) ........................................................................................................ 29
740 Ill. Comp. Stat. 160/2(d) ........................................................................................................ 29
740 Ill. Comp. Stat. 160/2(i) ......................................................................................................... 29
Rules
Fed. R. Civ. P. 9(b) ..................................................................................................... 25, 26, 28, 29
Fed. R. Civ. P. 12(b)(1)................................................................................................................. 12
Fed. R. Civ. P. 23.1 ....................................................................................................................... 19
Other Authorities
19 Am. Jur. 2d Corporations § 1949 ............................................................................................. 24
Balotti & Finkelstein, The Delaware Law of Corporations and Business Organizations
§ 13.10 (2011) ........................................................................................................................... 15

v
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I. JURISDICTIONAL STATEMENT
Defendants and Appellees Panda Express, Inc. (“Panda”), Panda Restaurant Group, Inc.
(“PRG”), Citadel-Panda Express, Inc., Andrew Cherng, and Peggy Cherng agree that Plaintiff
and Appellant Fortunee Massuda’s jurisdictional statement is complete and correct.
II. STATEMENT OF ISSUES
This is a case in which an indirect shareholder in a Delaware company seeks to re-litigate
claims previously brought, settled, and released by the company itself. Plaintiff contends that
she has been harmed because the company did not receive fair value when it sold Defendants its
“only real asset”—a 50% interest in a partnership that operated Chicago-area restaurants—
causing lost profits and proceeds to the company, and thus to its parent, and thus to investors in
the parent like Plaintiff. The District Court correctly held that the claims Plaintiff asserts, with
one exception, were derivative rather than direct. The District Court held that Plaintiff cannot
bring these claims on her own behalf because, under governing Delaware law, a shareholder’s
direct claim requires some harm that is “independent of any injury to the corporation.” Tooley v.
Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1038 (Del. 2004) (emphasis added). And
because the company settled these claims in a prior suit, Plaintiff cannot proceed derivatively on
the company’s behalf. The District Court also dismissed the sole claim that it deemed to be
individual—a fraud claim based on Panda’s alleged characterization of Massuda’s interest in the
parent company as “worthless”—because Plaintiff failed to adequately allege the essential
elements of intent, reliance, and damages.
The questions presented are as follows:
1. Did the District Court correctly apply Tooley to hold that the claims Plaintiff
asserted were derivative where she failed to allege any harm independent of the injury allegedly
1
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suffered by the company in which she was an indirect investor, and did it properly dismiss those
derivative claims where the company previously released them as part of a settlement?
2. Was the District Court within its discretion in concluding that Defendants were
not judicially estopped from arguing that the claims Plaintiff asserted were derivative simply
because Defendants had argued, the first time they had to defend them, that the claims lacked
merit?
3. Did the District Court properly dismiss Plaintiff’s supposedly individual fraud
claim, where she failed to sufficiently plead the essential elements of intent, reliance, and
damages?
III. STATEMENT OF THE CASE
This case arises from a June 2006 transaction in which Panda purchased PE Chicago,
LLC’s (“PE Chicago’s”) one-half interest in the Rezko-Citadel Partnership, a partnership formed
to open and operate Chicagoland restaurants. Panda was the general partner in Rezko-Citadel,
while PE Chicago—a Delaware limited liability company controlled by Tony Rezko—was its
limited partner. Panda sought to end that relationship amicably, paid PE Chicago a negotiated
price for its partnership interest, and, consistent with Panda’s long practice of minimizing
publicity regarding its business decisions, agreed to Rezko’s request that the sale be kept
confidential (a standard arrangement in partnership dissolutions). In 2008, Semir Sirazi, one of
Rezko’s longtime investors, sued Panda in connection with that transaction, alleging, among
other things, that Panda paid too little for PE Chicago’s interest in the partnership. Two years
later, PE Chicago itself, by then controlled by Sirazi, joined that lawsuit and asserted the same
claims (and others).
On Defendants’ motions, the court adjudicated most of Sirazi’s and PE Chicago’s claims
2
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(as well as Panda’s counterclaim against PE Chicago) in Defendants’ favor. Three claims were
tried to a jury, which rendered a verdict against Defendants. While the parties’ post-trial motions
were pending—and notwithstanding Defendants’ belief that the verdict was legally flawed and
factually baseless—Defendants agreed to settle with Sirazi and PE Chicago in order to buy
peace. In exchange for substantial consideration, PE Chicago agreed to a broad release of all
claims related to the Rezko-Citadel Partnership (a fact Plaintiff does not mention in her Opening
Brief). Thereafter, the Sirazi/PE Chicago court vacated the jury’s verdict and resulting
judgment.
Plaintiff—another longtime investor in Rezko’s businesses and an investor in PE
Chicago’s parent company—sat on the sidelines for more than four years while Sirazi and PE
Chicago litigated and then settled the prior case. Just a month after the settlement agreement was
signed, however, Plaintiff—represented by the same attorneys who had represented Sirazi and
PE Chicago—filed a copycat lawsuit, asserting claims identical to the ones PE Chicago had just
settled. Like the prior complaint, the claims here were premised on the allegation that PE
Chicago had unfairly lost the fair market value of its partnership interest, which harmed PE
Chicago, and thus its parent company because of lost proceeds and distributions, and thus
investors in the parent like Plaintiff.
Defendants moved to dismiss Plaintiff’s claims, arguing among other things that the
claims Plaintiff asserted were based on purported injuries to PE Chicago, and that, under
governing Delaware law, those claims were therefore derivative claims that PE Chicago had
already settled and released. The District Court agreed and dismissed the case, including a
supposedly individual fraud claim because Plaintiff failed to plead intent, reliance, or damages,
and declined to amend her complaint to attempt to do so.
3