Urban One, Inc. v. Tucci

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

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URBAN ONE, INC.,

)

)

Plaintiff,

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No. 17 C 7892

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v.

)

Judge Virginia M. Kendall

)

DEAN TUCCI,

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Defendant. )

)

MEMORANDUM OPINION AND ORDER

Plaintiff Urban One, Inc. is a corporation that owns and operates radio

stations. (Dkt. 108 ¶ 1.) Urban One previously brought a lawsuit against Direct

Media Power, Inc. when DMP failed to pay Urban One after using their services. (Id.

at ¶ 5; Radio One, Inc. v. Direct Media Power, Inc., Case No. 16-cv-01867 (N.D. Ill.)

(the “Contract Litigation.”) The Contract Litigation resulted in a default judgment

against DMP and in favor of Urban One. (Dkt. 108 ¶ 6.) DMP has not paid the

judgment and so Urban One brings the current action in an attempt to pierce the

corporate veil and sue for fraud to hold defendant Dean Tucci personally liable. (Dkt.

1.) Urban One now moves for summary judgment on these claims. (Dkt. 106).

BACKGROUND

The below facts come from Urban One’s Rule 56.1 Statement of Facts. (Dkt.

108.) Tucci failed to respond to the facts and therefore the Court deems the facts

admitted. See Local Rule 56.1(b)(3)(C).

Urban One is a Delaware corporation with its principal place of business in

Silver Springs, Maryland, that operates radio stations and sells airtime for broadcast

commercials. (Dkt. 108 ¶ 1.) On February 2, 2016, Urban One filed its above-

mentioned Contract Litigation, which sought to recover more than $1.3 million for

airtime that Urban One provided to Direct Power Media, Inc. clients but for which

DMP failed to pay. (Id. ¶ 5.) The Contract Litigation resulted in a default judgment

against DMP and in favor of Urban One on October 26, 2016 in the amount of

$1,398,658.58, plus post-judgment interest. (Id. ¶ 6.) That judgment remains

unpaid.

Dean Tucci, an Illinois citizen, started DMP in 2010 and was its sole owner

until February 2016, when ownership was transferred to a Tucci-controlled holding

company after Urban One filed the Contract Litigation against DMP. (Id. ¶ 7.) DMP

was a media liquidation company that would purchase unsold radio airtime at a

discount and sell that time to its clients. (Id.) In May 2013, Tucci re-incorporated

DMP in Illinois and obtained a new Employee Identification Number, which was used

for all business operations, payroll, and vendors after the reincorporation. (Id.) Tucci

served as the President and CEO of DMP, as well as the sole member of its board of

directors. (Id. ¶ 8.) He was involved in all decisions DMP made and had complete

control over its operations. (Id. ¶ 9)

Tucci incorporated several companies, including FDATR, Inc, which was

known as TelDebt Solutions, Inc., which was a tax settlement and resolution company

that later expanded to student loan consolidation. (Id. ¶¶ 18-20.). Tucci also

established Dang Enterprise and Media Liquidators as limited liability companies in

New Mexico. (Id. ¶¶ 28-30). Tucci established DMP Holdings, Inc. (“Holdings”) on

February 25, 2016, a few weeks after Urban One sued DMP in the Contract

Litigation. (Id. ¶¶ 31-32). Tucci transferred his ownership interest in DMP and

FDTAR/TelDebt to Holdings. (Id. ¶¶ 32-33). Holdings did not have a bank account

until more than a year after it was established. (Id. ¶ 34). Holdings did not abide by

corporate formalities and had no financial records, never had a formal board of

directors meeting, and never paid dividends. (Id. ¶ 36). Tucci owns 90% of Holdings

and his girlfriend, Beatta Piliciauskiene, owns the remaining 10%, though she gave

no consideration for her ownership interest. (Id. ¶¶ 36-37). The Board of Directors

of Holdings included Tucci, Tucci’s two children, and Piliciauskiene. (Id. ¶ 38).

Tucci ran all of his affiliated companies together. (Id. ¶ 40.) DMP and

FDATR/TelDebt were all operated out of two adjacent office suits in Wood Dale,

Illinois. (Id. ¶ 41.) They shared a single computer server for their businesses, and

FDATR/TelDebt’s employees were on DMP’s health insurance plan. (Id. ¶ 42.) At

times, Tucci paid DMP payroll out of FDATR/TelDebt and vice versa. (Id. ¶ 43.) And

Tucci indiscriminately made intercompany transfers among his various entities, with

no formality, corporate documentation, or business purpose. (Id. ¶ 44.) Tucci

consistently transferred hundreds of thousands of dollars among the different entities

and his personal accounts as he saw fit on a “need-to-need” basis without any formal

documentation. (Id. ¶ 45.) As Tucci’s assistant testified, “[e]ssentially money would

move, depending on whichever business was bringing in more cash flow that day. If

FDATR had a good day and we needed to make payroll or pay something for [DMP],

then there would be money moved. It would usually be a check cut . . . moving money

from FDATR to [DMP] or from [DMP] to Dang Enterprises, Dean Tucci, wherever it

needed to go.” (Id. ¶ 46.) These transfers were not loans and were not made for any

legitimate business purpose. (Id. ¶ 47.) There was no agreement regarding the use

of the funds – they could have been used for any purpose. (Id.) Tucci transferred

several hundred thousand dollars from DMP to FDATR/TelDebt alone in 2016. (Id.

¶ 48.)

Tucci admits to commingling funds between the various Tucci-affiliated

entities (i.e., DMP, FDATR, Dang, and TelDebt), including paying DMP debts and

expenses out of the other affiliated entities. (Id. ¶ 49.) For example, in mid-March

2017 through May 2017, FDATR/TelDebt paid $116,513 of DMP debt. (Id. ¶ 50.) And

between October 31, 2016 and November 6, 2016, DMP transferred around $261,000

to FDATR/TelDebt, which then transferred $85,000 to Dang. (Id. ¶ 51.) During these

transfers, DMP and the other Tucci entities, including FDATR/TelDebt, were not

doing business together nor were there any agreements among the different entities

for transfers made in and out of the companies. (Id. ¶ 52.)

Tucci also transferred funds from DMP and his other businesses to himself, his

children, his girlfriend, and his ex-wife whenever he desired. (Id. ¶ 53.) He had

checks cut directly to himself “from all entities on a . . . need-to-need basis, whenever

he needed something.” (Id. ¶ 54.) Tucci testified that it was his understanding that

“[i]f I borrow money on the firm and I want to pay myself, I can.” (Id. ¶ 55.) Despite

advising the bankruptcy court that he never took funds out of DMP other than his

$78,000 salary, DMP transferred more than $100,000 outside of his salary to Tucci

the year he stopped being a shareholder at DMP, and he likewise received an

additional $100,000 that year in transfers from FDATR/TelDebt for no legitimate

purpose. (Id. ¶ 57.) From January 2016 to March 2017, Tucci received non-salary-

related funds from DMP, Dang, FDATR, and TelDebt totaling $274,461.96. (Id. ¶

58.) Tucci’s Spreadsheets note these personal transfers as “Intercompany Transfers.”

(Id.) The transferred funds were not commissions because Tucci had no agreement

to receive commissions. (Id. ¶ 59.) Nor were they distributions or dividends because

Tucci was not a shareholder of DMP after February 26, 2016, and Tucci admitted that

DMP and Holdings never paid any dividends. (Id.) Tucci also made transfers out of

DMP to support his girlfriend Piliciauskiene, granting her an annual salary of

$60,000 from DMP, even though she did no work for the company. (Id. ¶ 60.) In 2016

alone, Tucci transferred more than $99,000 from DMP to the primary personal

account he and Beata jointly owned and more than $65,000 into another joint

personal account with Beata. (Id. ¶ 61.) Piliciauskiene received deposits into her

direct accounts from both DMP and FDATR/TelDebt. (Id.) But Tucci’s personal use

of corporate money did not stop there. DMP also cut checks to support Tucci’s ex-wife

for $4,400 each month. (Id. ¶ 63.)

Tucci additionally used the sham corporate structure specifically to avoid

payment of the Judgment. (Id. ¶ 64.) After the Judgment, Tucci emptied the

company’s U.S. Bank accounts to avoid collection efforts. (Id.) Tucci began

transferring hundreds of thousands of dollars out of DMP to other Tucci-owned

entities and himself personally. (Id.) Within five days of the Judgment, Tucci had

transferred $184,000 out of DMP. (Id. ¶ 65.) Within 21 days, Tucci had transferred

more than $391,000 out of DMP, including more than $354,000 to Dang, a non-

operational entity. (Id.) On November 10, 2016, Urban One issued a Citation to

Discover Assets on Tucci (the “Citation”). (Id. ¶ 66.) Urban One served the Citation

on DMP on November 11, 2016, with the Citation examination scheduled for

November 21, 2016 at 9:00 a.m. (Id.) Receiving the Citation did not alter Tucci’s

behavior – his transfers of DMP’s assets continued unabated. (Id.) When Tucci

learned of the Citation, he declared that “Radio One [Urban One] is not going to tell

him how to run his business, and that F them, he’ll do what he wants to do.” (Id ¶

67.) Tucci texted his assistant the night the Citation was served that “I don’t need

[Urban One’s counsel] trying to fuck us, we should move the bank accounts on

Monday.” (Id.) He then instructed his assistant to set up new bank accounts at

Citibank in the names of Dang and FDATR/TelDebt to collect DMP’s revenues from

clients. (Id. ¶ 68.) Tucci ordered his assistant to change the bank accounts linked to

DMP’s merchant accounts so DMP’s revenues would deposit into a bank account for

one of Tucci’s other entities. (Id.) He thereafter transferred $152,500 to Dang and

$1,500 to himself personally. (Id.) In the year following the Judgment, Tucci

improperly transferred more than $1 million out of DMP, including more than

$510,000 to Dang, more than $500,000 to FDATR/TelDebt, and more than $13,000 to

himself directly. (Id. ¶ 70.)

To avoid collection efforts, Tucci caused DMP to file for protection under

Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Case”). (Id. ¶

71.) Throughout the bankruptcy, however, Tucci continued to transfer more than

$475,000 out of DMP to Dang, TelDebt, and himself for personal gain. (Id. ¶ 72.)

Indeed, in its 2018 contempt order, the bankruptcy court found that Tucci violated

cash collateral orders by comingling its cash and transferring funds out of DMP to

affiliated entities. (Id.) The Bankruptcy Court held that despite the specific

prohibition on such transfers in the cash collateral orders, “Tucci continued to

transfer funds as he pleased between himself, DMP and Affiliated Entities.” (Id.) In

May 2017, the bankruptcy was converted to a Chapter 7, and it was ultimately

dismissed on September 21, 2017. (Id. ¶ 73.)

Urban One filed the instant case on November 1, 2017, asking the Court to

pierce the corporate veil and hold Tucci personally liable. (Id. ¶ 74). At the same

time as its Complaint, Urban One filed a motion for temporary restraining order and

preliminary injunction. (Id.) The Court granted Urban One’s temporary restraining

order and, in January 2018, held a three-day preliminary injunction hearing. (Id.)

Tucci repeatedly lied during the hearing about his prior admissions. (Id. ¶ 75.) Tucci

additionally misled this Court about the circumstances surrounding his receipt of the

Citation on DMP. (Id. ¶ 76.)

LEGAL STANDARD

Summary judgment is proper when “the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of

law.” Fed. R. Civ. P. 56(a); see, e.g., Reed v. Columbia St. Mary’s Hosp., 915 F.3d 473,

485 (7th Cir. 2019). The parties genuinely dispute a material fact when “the evidence

is such that a reasonable jury could return a verdict for the nonmoving party.”

Daugherty v. Page, 906 F.3d 606, 609–10 (7th Cir. 2018) (quoting Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986)). In determining whether a genuine issue of

fact exists, the Court must take the evidence and draw all reasonable inferences in

favor of the party opposing the motion. Anderson, 477 U.S. at 255; see also Zander v.

Orlich, 907 F.3d 956, 959 (7th Cir. 2018).

DISCUSSION

I. Piercing the Corporate Veil

Urban One first urges the Court to pierce the corporate veil and allow Tucci to

be held personally liable for the prior judgment, arguing that there is such a unity of

interest and ownership among Tucci, DMP, and Holdings that the separate

personalities of DMP and Holdings no longer exist; and that adherence to the fiction

of separate corporate existence would sanction a fraud or promote injustice. (Dkt.

107 at 12.) Corporations exist separately from their owners and the corporate veil

allows an entity’s investors to limit their liability and encourage

investment. Laborers' Pension Fund v. Lay–Com, Inc.,580 F.3d 602, 610 (7th Cir.

2009). A court may pierce a corporation's veil and hold individuals personally liable

for the underlying claim if the corporate form “is used as a cloak or cover for fraud or

illegality, to work an injustice, to defend crime, or to defeat an overriding public

policy, or where necessary to achieve equity.” Wachovia Securities, LLC v. Banco

Panamericano, Inc., 674 F.3d 743, 751-52 (7th Cir. 2012) (citing 18 Am.Jur.2d

Corporations § 57 (footnotes omitted)).

Illinois law permits corporate-veil piercing when two separate prongs are met:

“(1) there must be such unity of interest and ownership that the separate

personalities of the corporation and the individual no longer exist; and (2)

circumstances must be such that adherence to the fiction of separate corporate

existence would sanction a fraud or promote injustice.” Wachovia Securities, 674 F.3d

at 751-52. As outlined below, Urban One can show that there are no genuine issues

of material fact remaining with regards to either prong, so its motion for summary

judgment on this count is granted.

A. Urban One can show unity of interest and ownership

Under Illinois law, when determining whether a unity of interest and

ownership exists, as required to pierce the corporate veil, courts look at the following

factors: (1) inadequate capitalization; (2) failure to issue stock; (3) failure to observe

corporate formalities; (4) failure to pay dividends; (5) corporate insolvency; (6)

nonfunctioning corporate officers; (7) missing corporate records; (8) commingling of

funds; (9) diversion of assets to owner or other entity to creditor detriment; (10)

failure to maintain arm's-length relationship among related entities; and (11)

whether corporation is mere façade for a dominant owner. Id. at 752.

Here, Urban One has laid out sufficient undisputed facts to permit piercing of

the corporate veil. First, Urban One has shown that DMP had inadequate

capitalization and could not pay its bills on its own, instead relying upon inter-

company transfers. (Dkt. 107 at 15; Dkt. 108 at ¶¶ 44-47). Tucci additionally testified

that DMP was insolvent (Id.; Dkt. 108 ¶ 80). Holdings was never capitalized at all,

did not have a bank account until more than a year after its formation, and never

maintained a balance in any account. (Id.; Dkt. 108 ¶ 34). Tucci paid nothing for his

interest other than his contribution of the assets of DMP and FDTAR/TelDebt, while

his girlfriend received her share with no monetary contribution at all. (Id.; Dkt. 108

¶ 37).

Additionally, Tucci has not produced stock certificates for DMP or Holdings,

even though Urban One requested such information. (Dkt. 107 at 15; Dkt. 108 ¶14).

Tucci admitted that neither DMP nor Holdings ever paid any dividends. (Dkt. 107 at

16; Dkt. 108 ¶¶ 36, 59). Urban One also shows that DMP and Holdings failed to

observe corporate formalities and had an absence of corporate records. They did not

convene board of director meetings, they failed to maintain or produce a shareholder

agreement, they failed to maintain a corporate minute book, and they failed to

maintain legitimate records of transactions among Tucci’s companies. (Dkt. 107 at

16; Dkt. 108 ¶¶ 13, 36, 47, 52). DMP and Holdings also did not file income tax returns

for 2014, 2015, 2016 and 2017 until the IRS created substitute returns as part of a

2017 audit. (Id.; Dkt. 108 ¶ 80). Urban One also shows that Tucci led the operations

of DMP and Holdings with no other functioning officers or directors. (Dkt. 107 at 17;

Dkt. 108 ¶¶ 9-12). Tucci managed and controlled Holdings with no input from his

girlfriend, whom he gave a 10% share. (Id.; Dkt. 108 ¶38).

Urban One’s undisputed facts also show that Tucci commingled funds, diverted

assets from DMP to himself, and failed to maintain arm’s-length relationship among

related entities. (Dkt. 107 at 18; Dkt. 108 ¶¶ 40-52; 75.) Finally, Urban One shows

that DMP and Holdings were facades for Tucci’s operations, using DMP funding for

personal reasons and creating Holdings to hide DMP’s assets from Urban One. (Dkt.

107 at19; Dkt. 108 ¶¶ 31-33, 40-46, 53-57.) Due to the above undisputed facts, Urban

One has shown that there are no material facts at issue over whether there was unity

of interest and ownership among DMP, Holdings and Tucci.

B. Adherence to the fiction of separate corporate existence would

sanction fraud and promote injustice

Under the second prong of the veil piercing test, Urban One must show “that

adherence to the fiction of separate corporate existence would sanction a fraud or

promote injustice.” Wachovia Sec., 674 F.3d at 752. To support this prong, Urban

One brings a common law fraud claim that fails for the reasoning discussed below.

However, the test does not require an affirmative showing of fraud, but rather

something more than the mere prospect of an unsatisfied

judgment.” Id. (quoting Hystro Products, Inc. v. MNP Corp, 18 F.3d 1384, 1390 (7th

Cir. 1994)). Illinois law allows veil piercing to avoid unfair enrichment, permitting

the creator of a liability and cause of the inability to meet that liability to escape

responsibility, and to avoid allowing a corporation to keep assets in a liability-free

corporation while placing liabilities on an asset-free corporation among other reasons.

Id. At issue here is the unpaid judgment, which is not sufficient by itself to sanction

a fraud or promote injustice. See Sea-Land Services, Inc. v. Pepper Source, 941 F.2d

519, 522-23 (7th Cir. 1991) (summarizing cases where this second prong is met).

However, Tucci has created a number of businesses in order to escape liability for the

judgment he owes to DMP. Adhering to the corporate form would work an injustice

upon Urban One as it would allow Tucci to “keep assets in a liability-free corporation

while placing liabilities on an asset-free corporation.” Wachovia Sec., 674 F.3d at 756.

The undisputed facts here show that Tucci has spun an intricate web of companies in

order to escape paying Urban One its fair due. Due to this, Urban One has

demonstrated sufficient facts to show that the corporate veil should be pierced.

Summary judgment is granted on this count.

II. Common Law Fraud

Under the second prong of the Wachovia test, Urban One must show “that

adherence to the fiction of separate corporate existence would sanction a fraud or

promote injustice.” Wachovia Securities, 674 F.3d at 752. Having found that the

corporate veil may be pierced because not doing so would sanction a fraud or promote

injustice, the Court now turns to Defendant’s common law fraud claim.

Common law fraud is established when a defendant knowingly made a false

statement of material fact with the intent to induce the plaintiff and that plaintiff

justifiably relied on the statement and suffered damages resulting from his reliance.

Ass'n Ben. Servs. v. Caremark Rx, Inc., 493 F.3d 841, 853 (7th Cir. 2007); see also

Check v. Clifford Chrysler-Plymouth of Buffalo Grove, Inc., 794 N.E. 2d 829, 835 (Ill.

App. 2003) (listing the elements of common law fraud as: (1) a false representation

of a material fact; (2) by a party who knows or believes it to be false; (3) with the

intent to induce a plaintiff to act; (4) reliance on the statement by the plaintiff; and

(5) injury to the plaintiff as a result of that reliance.) Fraudulent conduct “may also

be based on the omission or concealment of a material fact if accompanied by the

intent to deceive under circumstances which create the opportunity and duty to

speak.” Wachovia Securities, LLC v. Neuhauser, 528 F.Supp.2d 834, 851-52 (N.D. Ill.

2007). Urban One argues that Tucci’s conduct, i.e. his knowingly improper financial

transfers, the violations of the bankruptcy court’s order, his disregard for the

Citation, and his false testimony shows that he defrauded Urban One. (Dkt. 107 at

21.)

The entirety of Tucci’s conduct and statement to Urban One were

misrepresentations of his wealth in order to get Urban One to believe that they could

not recover from him. Not only did Tucci falsely testify to the bankruptcy judge, he

falsely testified in this Court repeatedly while on the witness stand. He falsely stated

that outside of his salary he had not received any other funds; that he did not know

what commingling meant; that he never received the Citation to Discover Assets; that

he had only arrived at his office at 5:36 that evening (when phone records show

otherwise). (See Dkt. ¶¶ 108 15, 75-76). This is just smattering of the multiple

statements and misrepresentations made to this Court which led to the obvious

conclusion based on his evasive and flippant demeanor and the testimony that he was

lying. These false statements of lack of financial ability were made prior to the

lawsuit to lull Urban One into believing that any efforts on their part to attempt to

recover in the contract lawsuit would fail; any efforts to put funds in a bankrupt

estate would fail; and finally any effort to obtain funds based on this summary

judgment would fail. Urban One has been damaged in having to pay countless

attorneys fees and costs in an effort to redress this injustice. Urban One is entitled

to summary judgment on the common law fraud count.

CONCLUSION

Urban One statement of material facts, which is not disputed by Tucci, shows

that they are entitled to judgment as a matter of law on both counts and are permitted

to pierce DMP and Holding’s corporate veil and hold Tucci personally liable. Urban

One’s Motion for Summary Judgment [106] is therefore granted

xy CO

As tial I oY, tn tl

Arginia/M. Kendall

ynived States District Judge

Date: April 1, 2020

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