Fortunee Massuda v. Panda Express, Inc.

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13‐2818
FORTUNEE MASSUDA ,
Plaintiff‐Appellant,
v.
P ANDA E XPRESS, INC., et al.,
Defendants‐Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 12 C 9683 — Ronald A. Guzmán, Judge.
____________________
A RGUED J ANUARY 22, 2014 — D ECIDED J ULY 21, 2014
____________________
Before WOOD, Chief Judge, and MANION and W ILLIAMS ,
Circuit Judges.
WOOD, Chief Judge. This case concerns an ill‐fated invest‐
ment that Fortunee Massuda made in a group of Panda Ex‐
press 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,

-- 1 of 14 --

2 No. 13‐2818
for which he received a lengthy prison sentence in 2011. See
United States v. Rezko, 776 F. Supp. 651, 653 (E.D. Ill. 2011).
Along the way, his real estate ventures collapsed, and Mas‐
suda filed this lawsuit against Rezko’s corporations and as‐
sociated 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, ex‐
cept 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.
C IV. P. 12(b)(6). After Massuda passed up the court’s invita‐
tion 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.
I
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 Rez‐
ko 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

-- 2 of 14 --

No. 13‐2818 3
limited liability company. In 1998, PE Chicago replaced Con‐
cessions as the general partner of the RC Partnership.
In late 1997 or early 1998, Massuda invested her $4 mil‐
lion 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 approxi‐
mately $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 finan‐
cial 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 Wil‐
kinson and asked for an urgent $3 million loan, because GE
Capital was about to foreclose on his house. Wilkinson con‐
veyed 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 personal‐
ly (not PE Chicago) a buy‐back option. This time Panda
agreed; it purchased PE Chicago’s interest in the RC partner‐
ship for $9.7 million on June 1, 2006, and wired approximate‐
ly $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 Con‐
cessions and its affiliates as well as Rezko himself) owed
Panda substantial monies and that those debts were retired

-- 3 of 14 --

4 No. 13‐2818
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 Part‐
nership for significantly less than its fair market value. Mas‐
suda was never told about the transaction, despite her sub‐
stantial interest in PE Chicago through her 11% ownership
of Enterprises. She was evidently not alone in this respect: it
appears that none of Enterprises’s members (other than Rez‐
ko) was informed about the Panda deal.
Rezko’s fortunes continued to spiral downward. He was
indicted by a federal grand jury in November 2006 and at
that point leaves our story. It was not until 2008 that Sirazi,
another one of Rezko’s investors, first discovered the details
of the Panda‐Rezko‐PE Chicago transaction. He promptly
sued Panda, Panda Restaurant Group, Inc., Citadel‐Panda
Express, Inc., and Andrew and Peggy Cherng (the Panda de‐
fendants), claiming that they had conspired with Rezko to
defraud investors and had aided and abetted Rezko’s
breaches of his fiduciary duties to the investors in his busi‐
nesses. Sirazi later gained control over PE Chicago and add‐
ed it as a co‐plaintiff to his action. A jury found the Panda
defendants liable to Sirazi for conspiracy and aiding and
abetting a breach of a fiduciary duty, and awarded him
$1,100,000 in compensatory damages and $2,000,000 in puni‐
tive damages against each of the three corporate defendants.
The court dismissed all of PE Chicago’s tort claims, but PE
Chicago won $5,140,000 on its breach of contract claim
against the Panda defendants. In the end, those judgments
were vacated after the parties reached a settlement. (As far
as the record shows, Massuda received no benefit from this

-- 4 of 14 --

No. 13‐2818 5
settlement other than the indirect effect that filtered up to
her from whatever PE Chicago recovered.)
After the settlement, Massuda re‐entered the picture. In
the present case, she has advanced essentially the same
claims that Sirazi raised against the Panda defendants. As we
noted earlier, the district court ultimately dismissed her ac‐
tion, because most of her claims were derivative and she had
not stated a claim for fraud. In this court, she argues that the
court erred in so finding. She also contends that the district
court should have applied judicial estoppel against Panda
and that it should have allowed her to pursue her fraud the‐
ory.
II
The district court dismissed all counts with prejudice;
our review is therefore de novo. Stayart v. Google Inc., 710 F.3d
719, 722 (7th Cir. 2013). Because PE Chicago and Enterprises
are Delaware limited liability companies, the parties have
assumed that Delaware law governs everything but her
fraud claim. See Massey v. Merrill Lynch & Co., Inc., 464 F.3d
642, 645 (7th Cir. 2006) (applying law of state of incorpora‐
tion to derivative claim issue). We will follow their lead and
assess this case using principles of Delaware corporate law
for the two LLCs. At this point, PE Chicago has released all
claims arising from this matter through its settlement, and so
its interests are no longer at issue. Massuda’s complaint can
survive only if she alleges direct injury. For ease of exposi‐
tion, we evaluate each of her theories individually.
Count I: Unjust Enrichment
We begin with Massuda’s contention that “Defendants
unjustly deprived and cheated Plaintiff out of the true and

-- 5 of 14 --

6 No. 13‐2818
proper value of PE Chicago’s 50% interest in [the RC Part‐
nership].” In characterizing this as direct or derivative, we
look to the Delaware Supreme Court’s decision in Tooley v.
Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004),
for guidance. Tooley held that “[t]he analysis must be based
solely on the following questions: Who suffered the alleged
harm—the corporation or the suing stockholder individual‐
ly—and who would receive the benefit of the recovery or
other remedy?” 845 A.2d at 1035. Under that test, Massuda
fails at step one: if anyone was unjustly deprived of the true
value of PE Chicago’s interest, it was PE Chicago. Massuda
was two steps away: she owned an interest in Enterprises,
which owned PE Chicago, which had a 50% interest in the
RC Partnership. Indeed, Massuda recognizes in her com‐
plaint that the “[d]efendants unjustly deprived and cheated
Plaintiff out of the true and proper value of PE Chicago’s 50%
interest in [the RC Partnership].” It was PE Chicago that had
the 50% interest in the RC Partnership and thus PE Chicago
that was harmed directly. Massuda’s claim is derivative.
Count II: Fraud
Massuda offers four theories to support her fraud allega‐
tions: (1) the Panda defendants intentionally defrauded her,
PE Chicago, and Enterprises out of the fair market value of
PE Chicago’s 50% interest by paying Rezko personally for PE
Chicago’s 50% interest in the RC Partnership instead of pay‐
ing PE Chicago itself; (2) the defendants falsely represented
that the purchase price Panda offered for PE Chicago’s 50%
interest represented the fair market value; (3) the defendants
made material omissions by failing to inform interested
third‐parties, including Massuda, of the transaction, even
though they knew of her interest; and (4) the defendants

-- 6 of 14 --

No. 13‐2818 7
falsely and misleadingly represented to Massuda just before
the purchase of PE Chicago that her interest in Enterprises
(and indirectly PE Chicago) was “worthless.”
Massuda argues that the Panda defendants should be es‐
topped from arguing that her fraud claims are derivative,
because they successfully argued in the Sirazi litigation that
PE Chicago could not succeed on the same fraud claims. The
district court correctly rejected this argument. In the earlier
case, the Panda defendants did not challenge PE Chicago’s
standing to bring the fraud claims. They argued instead that
those claims failed on the merits. The question whether the
claims were barred as derivative did not come up. Judicial
estoppel is designed to prevent parties from obtaining an
unfair advantage by taking a present position that is incon‐
sistent with one successfully taken in the past. See Matter of
Cassidy, 892 F.2d 637, 641 (7th Cir. 1990). It does not prevent
a party from turning to an entirely new theory. Since there is
no inconsistency here, we move to the merits.
Massuda’s first argument is that the Panda defendants
defrauded her and others out of the fair market value of PE
Chicago’s interest. For the same straightforward reason we
mentioned earlier, this is derivative. PE Chicago was the
immediate party injured; any recovery would go to PE Chi‐
cago first, and its members second. See Tooley, 845 A.2d at
1035.
She next contends that the Panda defendants falsely stat‐
ed the purchase price was for fair market value. We can dis‐
miss this argument because she has not developed it on ap‐
peal. See United States v. Berkowitz, 927 F.2d 1376, 1384 (7th
Cir. 1991) (“We repeatedly have made clear that perfunctory
and undeveloped arguments, and arguments that are un‐

-- 7 of 14 --

8 No. 13‐2818
supported by pertinent authority, are waived”). Even if we
stretched to find it preserved, she would be no better off. A
claim of common‐law fraud under Illinois law requires proof
of five elements: “(1) a false statement of material fact; (2)
defendant’s knowledge that the statement was false; (3) de‐
fendant’s intent that the statement induce the plaintiff to act;
(4) plaintiff’s reliance upon the truth of the statement; and (5)
plaintiff’s damages resulting from the reliance on the state‐
ment.” Tricontinental Indus., Ltd. v. PricewaterhouseCoopers,
LLP, 475 F.3d 824, 841 (7th Cir. 2007) (internal quotation
marks omitted). Massuda never alleged that the Panda de‐
fendants intended to induce her to act based on its state‐
ment, nor that she did rely to her detriment. This claim was
properly dismissed with prejudice.
Massuda’s next allegation is that the Panda defendants
omitted material information by failing to notify her when
Panda acquired PE Chicago’s interest in the RC Partnership,
even though they knew of her interest. See, e.g., Wigod v.
Wells Fargo Bank, N.A., 673 F.3d 547, 571 (7th Cir. 2012) (rec‐
ognizing that under Illinois law a plaintiff’s fraudulent con‐
cealment claims “must allege that the defendant intentional‐
ly omitted or concealed a material fact that it was under a
duty to disclose to the plaintiff.”). This is the closest she
came to alleging a direct claim, but as the district court
properly concluded, she fell short.
The key element missing from Massuda’s complaint was
an allegation, supported by facts, that the defendants were
under a duty to disclose material facts to her. That is so even
though we have noted that Illinois courts have “found a lack
of good faith where the transferee knew of a pending law‐
suit against the transferor and accepted the transfer without

-- 8 of 14 --

No. 13‐2818 9
informing the plaintiff.” For Your Ease Only, Inc. v. Calgon
Carbon Corp., 560 F.3d 717, 721 (7th Cir. 2009) (citing Kennedy
v. Four Boys Labor Service, 279 Ill. App.3d 361 (1996)). One
could deduce from this that Panda had a duty to inform
Massuda about the sale because she informed Panda a
month before the acquisition that she was suing Rezko and
others. That is not, however, the theory that Massuda pre‐
sented. Instead, up until her reply brief in this court, she as‐
serted that the duty to avoid misleading omissions was root‐
ed in her status as a minority member.
That was a mistake on her part. And while we generally
would be inclined to remand with a suggestion that plaintiff
be allowed to re‐plead, since parties are not obligated to
plead legal theories, such a move would be pointless here.
Massuda already has turned down a chance to sharpen her
fraud pleadings, which must meet the specificity require‐
ments of Federal Rule of Civil Procedure 9(b). We see no rea‐
son to give her a third chance. See Int’l Mktg., Ltd. v. Archer‐
Daniels‐Midland Co., 192 F.3d 724, 727 (7th Cir. 1999) (holding
that when a plaintiff “decide[s] to forgo [her] opportunity to
amend the complaint and instead to pursue an immediate
appeal,” she makes a “strategic decision [that] mean[s] that
[her] case can be resuscitated only if [she] is able to convince
this court that [she] had in fact properly stated [her fraud]
claim[] in the form [it] took before the district court in the
unamended complaint”).
The same analysis applies to the allegation that the Panda
defendants falsely and misleadingly represented to Massuda
that her interest in Enterprise and PE Chicago was “worth‐
less.” In dismissing, the district court found that she failed to
state a claim because she failed to point to any facts to sup‐

-- 9 of 14 --

10 No. 13‐2818
port her assertion that the defendants made the statement
with the intention that it would induce her to act, that she
relied on the truth of the statement, or that she suffered any
damages as a result of the allegedly fraudulent statement.
The district court also thought that she had not pleaded the
claim with particularity, as required by Rule 9(b), because
she did not adequately explain who made the statement, or
where and how it was made. On appeal, the Panda defend‐
ants also argue that even assuming they did say her interest
was worthless, that was a matter of opinion and not actiona‐
bly false.
The latter ground does not strike us as appropriate for
dismissal on the complaint. At this point, we do not know
whether the statements made to Massuda were non‐
actionable opinions. Giving her the benefit of the doubt, it is
at least debatable that Panda valued her interest at zero at
the time of their conversation: Panda was then a 50% owner
in the RC Partnership and thus would have had a very good
idea about the partnership’s worth.
The adequacy of her allegations of fraud, however, is an‐
other matter. In her complaint, Massuda explains that she
called Panda’s general counsel, said that she was suing Rez‐
ko, and wanted to know if Panda was interested in buying
her interest in the company. At that point, she alleges, “The
Defendants falsely and misleadingly represented to [plain‐
tiff] that her interest in Enterprises and PE Chicago was
‘worthless,’ when Defendants instead paid millions to Rezko
personally for his supposed interest in said companies.” This
statement, no matter how generously read, says nothing
about whether (1) the defendants intended her to act on the
basis of the false statement; (2) she actually relied on the

-- 10 of 14 --

No. 13‐2818 11
truth of the statement; or (3) she was damaged as a result of
her reliance. While the district court gave plaintiff leave to
amend her complaint she chose not to do so. Because Mas‐
suda cannot show an “injury [that is] independent of any
alleged injury to the corporation,” Tooley, 845 A.2d at 1039,
her injury is derivative and barred by the settlement; dismis‐
sal with prejudice was proper.
Count III: Conspiracy to Defraud
In this count, Massuda alleged that the Panda defendants
and Rezko conspired “to defraud PE Chicago and Enterpris‐
es, and those with interests in [the same]” through the sale of
the RC Partnership interest at a price well below fair market
value. This claim is derivative. Once again, the entity that
suffered from the depressed price was PE Chicago. Massu‐
da’s injury was derivative.
Count IV: Aiding and Abetting a Breach of Fiduciary Duty
Count IV alleges that the Panda defendants were aware
of Rezko’s duties as an officer of PE Chicago and Enterprises
and yet knowingly participated, assisted, and benefited from
his breach of these duties via the secretive sale of the RC
Partnership interest. Massuda believes that the case of Gen‐
tile v. Rossette, 906 A.2d 91 (Del. 2006), gets her over the de‐
rivative injury hurdle for this theory, at least.
It is no stretch to say Rezko breached many fiduciary du‐
ties, including duties to the other members of the firm. He
deliberately circumvented what should have been a manda‐
tory vote of the members. The sale of PE Chicago’s interest in
the RC Partnership disposed of the only asset PE Chicago
had, and thus may have made that sale a fundamental cor‐
porate change. See 8 Del.C. § 271(a). By conducting the sale

-- 11 of 14 --

12 No. 13‐2818
without a vote, we can assume that Rezko deprived the
members of their voting power and that this amounted to a
harm felt directly by the members.
In Gentile, the corporation’s CEO was also its main source
of capital. As consideration for his loans, the CEO received
promissory notes that were convertible into shares of com‐
pany common stock. An agreement provided that the origi‐
nal conversion rate was $1.33 of debt per share; later it was
reduced to $.75, and then $.50. Eventually the CEO thought
that the company’s debt to him was deterring outside in‐
vestment, and so he converted two‐thirds of his debt into
equity. In the debt conversion, however, the CEO and anoth‐
er officer decided to lower the conversion rate substantially,
to $.05 of debt per share. All told, the CEO received 44 mil‐
lion shares, significantly more than he would have received
under the contractual conversion rate in place at the time
($.50).
The conversion had the effect of increasing the CEO’s eq‐
uity holdings from 61.9% to 93.49% of the total. The minority
shareholders thus experienced a dilution of their interest
from 38.81% to 6.51%. Two months after the conversion, the
company, led by the CEO, negotiated a merger whereby the
company’s shareholders would receive approximately .49
shares of the acquirer’s shares for each of its shares. The ac‐
quiring company also offered the CEO side benefits, includ‐
ing a put agreement whereby it would repurchase 360,000
shares of the stock the CEO received in the merger at $5 a
share one year later. Neither the CEO’s original conversion of
his debt into undervalued stock nor the side perks were
mentioned in the Information Statement sent to shareholders
about the merger. The merger was approved. Later, minority

-- 12 of 14 --

No. 13‐2818 13
shareholders brought suit claiming that their shares had
been diluted improperly by the issuance of excessive stock to
the CEO.
Ultimately, after losing in the lower court (which thought
that their claims were derivative), the minority stockholders
prevailed in the Delaware Supreme Court. That court ruled
that the debt conversion claim was both derivative and di‐
rect. 906 A.3d at 99. It said that “the debt conversion was a
self‐dealing corporate transaction with a significant stock‐
holder, that increased the voting power and economic value
of that significant stockholder’s interest in [the company], at
the expense and to the corresponding detriment of the mi‐
nority shareholders.” Id. While the court found injury to the
company from the overpayment for debt, it recognized that
the minority stockholders independently “lost a significant
portion of the cash value and the voting power of their minori‐
ty stock interest. Those separate harms resulted from the
same transaction, yet they are independent of each other.” Id.
(emphasis added). The Court recognized a particular “trans‐
actional paradigm—a species of corporate overpayment
claim” that is both derivative and direct. Id. That is, “[a]
breach of fiduciary duty claim having this dual character
arises where: (1) a stockholder having majority or effective
control causes the corporation to issue ‘excessive’ shares of
its stock in exchange for assets of the controlling stockholder
that have a lesser value; and (2) the exchange causes an in‐
crease in the percentage of the outstanding shares owned by
the controlling stockholder, and a corresponding decrease in
the share percentage owned by the public (minority) share‐
holders.” Id. at 99–100. In such cases, the minority stock‐
holder’s direct injury arises “[b]ecause the shares represent‐
ing the ‘overpayment’ embody both economic value and vot‐

-- 13 of 14 --

14 No. 13‐2818
ing power, the end result of this type of transaction is an im‐
proper transfer—or expropriation—of economic value and
voting power from the public shareholders to the majority or
controlling stockholder.” Id. at 100.
Massuda argues that Gentile stands for the proposition
that every time the holder of a majority interest acts in a way
that helps him and hurts the minority, there is a direct claim.
We do not read it so broadly, as doing so would wholly swal‐
low Tooley. Instead, we understand it to stand for the more
modest proposition that when a majority shareholder en‐
gages in wrongdoing in such a way as to dilute the voting
power of the minority shareholders, minority shareholders
can bring a direct suit for voting power dilution. This makes
sense because a dilution of voting power is a direct harm to
the shareholders that is not felt by the company.
If Massuda had alleged that Panda aided and abetted
Rezko’s unlawful dilution of member voting power, she
would have stated a claim for a direct injury. But, at least un‐
til she filed her reply brief, which was too late, she did not.
Instead, she has complained of the improvidence and waste‐
fulness of the sale itself. But the only party directly harmed
by the sale was PE Chicago. The district court properly
found that Massuda cannot recover for her derivative inju‐
ries, and that she failed to state a claim for fraud.
We therefore A FFIRM the judgment of the district court.

-- 14 of 14 --