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American Quality Schools Corporation v. The Leona Group

United States District Court, N.D. Indiana, Hammond Division

September 22, 2017

AMERICAN QUALITY SCHOOLS CORPORATION, Plaintiff,
v.
THE LEONA GROUP, et al., Defendants.

          OPINION AND ORDER

          RUDY LOZANO, JUDGE UNITED STATES DISTRICT COURT

         This matter is before the Court on: (1) Motion to Dismiss Counts II and III of Complaint Pursuant to Rule 12(b)(6), filed by The Leona Group on December 13, 2016 (DE #8); (2) Defendant the School Board of the East Chicago Urban Enterprise Academy's Motion to Dismiss Plaintiff's Complaint, filed on December 13, 2016 (DE #9); and (3) Defendant Ben Clement's Motion to Dismiss Counts I, III, and IV of Plaintiff's Complaint Pursuant to Rule 12(b)(6), filed on December 16, 2016 (DE #12). For the reasons set forth below, the motions are GRANTED. The Complaint is DISMISSED WITHOUT PREJUDICE.

         BACKGROUND

         American Quality Schools (“AQS”) brought suit against The Leona Group (“Leona”), the School Board of the East Chicago Urban Enterprise Academy (“Board”), and Ben Clement (“Clement”) in Lake County, Indiana on March 30, 2016. AQS is an Educational Management Organization (“EMO”). AQS entered into a contract to operate the East Chicago Urban Enterprise Academy (“Academy”), a charter school, from July 1, 2014 to June 30, 2016. The Academy received high academic ratings under AQS's management. Despite those ratings, the Board did not renew AQS's contract to manage the Academy. Instead, the Board contracted with Leona to manage the Academy. The complaint alleges that this was the result of Clement and Leona interfering with AQS's business relationship with the Board (Counts I and II). The complaint further alleges that Clement conspired with both Leona (Count III) and the Board (Count IV) to interfere with AQS's business relationship with the Board. Lastly, the complaint alleges that the Board breached its fiduciary duty to AQS (Count V).

         Each Defendant has filed a motion to dismiss the complaint. The motions are fully briefed and ripe for adjudication.

         DISCUSSION

         Federal Rule of Civil Procedure 12(b)(6) allows a complaint to be dismissed if it fails to “state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Allegations other than fraud and mistake are governed by the pleading standard outlined in Federal Rule of Civil Procedure 8(a), which requires a “short and plain statement” that the pleader is entitled to relief. Maddox v. Love, 655 F.3d 709, 718 (7th Cir. 2011).

         In order to survive a Rule 12(b)(6) motion, the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). All well-pleaded facts must be accepted as true, and all reasonable inferences from those facts must be resolved in the plaintiff's favor. Pugh v. Tribune Co., 521 F.3d 686, 692 (7th Cir. 2008). However, pleadings consisting of no more than mere conclusions are not entitled to the assumption of truth. Iqbal, 556 U.S. at 678-79. This includes legal conclusions couched as factual allegations, as well as “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements.” Id. at 678 (citing Twombly, 550 U.S. at 555).

         Intentional Interference with a Business Relationship

         The complaint alleges that the Board's contract with AQS was not renewed because Clement and Leona interfered with AQS's business relationship with the Board (Counts I and II). According to AQS, Clement was hired by the Board as an educational consultant in late 2015. Previously, Clement served on the board of a different charter school, the Thea Bowman Leadership Academy (“TBLA”). In that role, Clement was part of a decision to sever TBLA's relationship with AQS in favor of its competitor, Leona. Defendants argue that this claim must fail because there was no business relationship to interfere with and, even if there were, the complaint does not allege the illegal conduct required for the claim to succeed.

         The elements of intentional interference with a business relationship under Indiana law include: (1) the existence of a valid business relationship; (2) The defendant's knowledge of the existence of the relationship; (3) intentional interference with the relationship; (4) the absence of justification; and (5) damages resulting from the interference. Harvest Life Ins. Co. v. Getche, 701 N.E.2d 871, 876 (Ind.Ct.App. 1998). Additionally, a plaintiff need not show the existence of a valid contract where the defendant illegally achieved its end. Id. See also Johnson v. Hickman, 507 N.E.2d 1014, 1019 (Ind.Ct.App. 1987).

         The contract entered into by the Board and AQS expired on June 30, 2016. It did not contain a renewal provision. (DE #8-1 at 11-35). AQS has not alleged that the Board breached the contract. Leona and Clement urge this Court to find that the business relationship between AQS and the Board expired with the contract, and there was therefore no business relationship that they could have interfered with. See Computers Unlimited, Inc. v. Midwest Data Systems, Inc., 657 N.E.2d 165, 168 (Ind.Ct.App. 1995)(finding, under the facts of that case, that no business relationship existed after termination of the contract).

         The complaint does not allege facts from which it can be inferred that a business relationship existed between AQS and the Board outside of the relationship established by the contract. Nonetheless, in its response brief, AQS suggests that the business relationship between the Board and AQS was more extensive than the single contract at issue here. AQS alleges the relationship began eleven years prior to this contract. (DE #19 at 8). That fact, however, is not in the complaint, and will not be considered by this Court.[1]

         Even if, as AQS alleges, its business relationship with the Board extends beyond the contract, it must allege illegal conduct. AQS's complaint alleges that Clement was not impartial and favored a transfer to Leona. He further alleges that the Board, as part of the proposal process, sought proprietary information that was not relevant to the proposal process but would have been relevant to a management transition. (DE #8-2 page 6). This amounts ...


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