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Massuda v. Panda Express, Inc.

United States Court of Appeals, Seventh Circuit

July 21, 2014

FORTUNEE MASSUDA, Plaintiff-Appellant,
PANDA EXPRESS, INC., et al., Defendants-Appellees

Argued January 22, 2014

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 12 C 9683 -- Ronald A. Guzmá n, Judge.

For FORTUNEE MASSUDA, Doctor, an Illinois Resident and citizen, Plaintiff - Appellant: Robert S. Grabemann, Attorney, Timothy M. Schaum, Attorney, Daspin & Aument, Llp, Chicago, IL.

For PANDA EXPRESS, INC., a California corporation, CITADEL PANDA EXPRESS INCORPORATED, a California corporation, PANDA RESTAURANT GROUP INCORPORATED, a California corporation, formerly known as: PANDA MANAGEMENT COMPANY INCORPORATED, ANDREW CHERNG, a California resident and citizen, PEGGY CHERNG, a California resident and citizen, Defendants - Appellees: Michael Dockterman, Attorney, Edwards Wildman Palmer Llp, Chicago, IL; Christopher D. Dusseault, Attorney, Gibson, Dunn & Crutcher, Los Angeles, CA.

Before WOOD, Chief Judge, and MANION and WILLIAMS, Circuit Judges.


Page 780

Wood, Chief Judge.

This case concerns an ill-fated investment that Fortunee Massuda made in a group of Panda Express restaurants. In hindsight, Massuda's mistake was to entrust $4,000,000 in 1997 with Tony Rezko, who controlled several companies that owned and operated the restaurants and who hoped to expand the business. Rezko wound up indicted and convicted on federal fraud and bribery charges, for which he received a lengthy prison sentence in 2011. See United States v. Rezko, 776 F.Supp.2d 651, 653 (E.D. Ill. 2011). Along the way, his real estate ventures collapsed, and Massuda filed this lawsuit against Rezko's corporations

Page 781

and associated people. In it, she raised claims of unjust enrichment, fraud, and aiding and abetting a breach of fiduciary duty. (The parties are of diverse citizenship and the amount-in-controversy requirement of 28 U.S.C. § 1332 is plainly met.) The district court concluded that all of Massuda's claims, except portions of her fraud claim, were derivative, and on that ground dismissed those counts with prejudice for failure to state a claim upon which relief could be granted. See Fed.R.Civ.P. 12(b)(6). After Massuda passed up the court's invitation to amend her fraud allegations, it wrapped up the case by dismissing the fraud claim as well. This appeal followed. Finding no error in the district court's rulings, we affirm its judgment.


Our account of the facts is as generous to Massuda's viewpoint as the complaint will permit, given the fact that her suit was dismissed at the earliest possible stage. From 1993-98, the Rezko-Citadel partnership (RC Partnership), a joint venture between Panda Express, Inc. (Panda) and Rezko Concessions, Inc. (Concessions), owned and operated roughly 50 Panda Express restaurants in the greater Chicago area. Panda and Concessions each had a 50% interest in the RC partnership; Concessions was the general partner and Panda the limited partner. Concessions was also the majority owner of Rezko Enterprises, LLC (Enterprises), another company controlled by Rezko; Enterprises wholly owned and controlled PE Chicago, LLC (PE Chicago), a Delaware limited liability company. In 1998, PE Chicago replaced Concessions as the general partner of the RC Partnership.

In late 1997 or early 1998, Massuda invested her $4 million in Enterprises, which by then owned and controlled PE Chicago, in exchange for an ownership interest of nearly 11%. As of 2000, the RC Partnership was valued at approximately $42.22 million; by 2001, its value had climbed to $56.4 million. Others with a stake in PE Chicago included Rezko himself, who was the managing member, and Semir Sirazi.

By 2005 it was clear that Rezko was in significant financial and legal trouble. Around April 2006, Massuda went to Panda, informed it of her intent to sue Rezko and Enterprises and asked whether Panda would be interested in buying her interest in Enterprises. Panda's general counsel, R. Michael Wilkinson, replied that Panda was uninterested because her interest was " worthless."

About a month later, in mid-May, Rezko contacted Wilkinson and asked for an urgent $3 million loan, because GE Capital was about to foreclose on his house. Wilkinson conveyed the request to Panda's Board, which turned it down. Rezko then offered to sell PE Chicago's interest in the RC partnership to Panda, if Panda would pay him $3 million immediately, keep the deal secret, and grant Rezko personally (not PE Chicago) a buy-back option. This time Panda agreed; it purchased PE Chicago's interest in the RC partnership for $9.7 million on June 1, 2006, and wired approximately $3.25 million to Rezko's personal account. No money was ever transferred to a PE Chicago account. Instead, the agreement stated that Rezko (defined to include Rezko Concessions and its affiliates as well as Rezko himself) owed Panda substantial monies and that those debts were retired by the sale. Interestingly, the Purchase Agreement never mentions PE Chicago. As agreed, Rezko and Panda kept the sale secret.

Panda acquired PE Chicago's 50% interest in the RC Partnership for significantly less than its fair market value. Massuda was never told about the transaction, ...

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