Panda Express Ducks Suit Over Ties to Rezko
CHICAGO (CN) - An individual investor cannot show she was directly injured by Panda Express's secret deal with Tony Rezko, the real estate mogul convicted of running a pay-to-play political influence scheme, the 7th Circuit ruled this week.
The Chinese take-out chain entered into a partnership in 1993 with Rezko-Citadel, a company owned by Antoin "Tony" Rezko, a close associate of former Illinois Gov. Rod Blagojevich.
Panda Express is owned by Andrew and Peggy Cherng, longtime friends of Rezko.
The partnership aimed to open 80 Panda Express restaurants in the Chicago area and across the Midwest, under the entity Panda Express Chicago (PE Chicago).
But Rezko-Citadel failed to meet this goal, in part because it attempted to operate a number of Papa John's restaurants at the same time. To prop up these failing restaurants, Rezko transferred more than $6 million from PE Chicago to fund the failing pizza businesses.
To help their friend avoid foreclosure, the Cherngs agreed to secretly buy PE Chicago's interest in the partnership, wiring $3 million to Rezko's personal account, without notifying shareholders.
Soon afterward, Rezko was indicted in 2008 on 16 charges of public corruption: demanding kickbacks from companies that wanted to do business with the state.
Panda Express later settled charges of conspiracy with PE Chicago and investor Semir Sirazi for undisclosed figures.
But the 7th Circuit affirmed the dismissal of a separate investor lawsuit on Monday, in which Fortunee Massuda claimed Rezko's actions rendered her $4 million investment worthless.
"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 until she filed her reply brief, which was too late, she did not," Judge Diane Wood wrote for the three-judge panel.
But Massuda's claims are derivative, and PE Chicago has already settled its claims against Panda Express over the Rezko deal.
"Instead, she has complained of the improvidence and wastefulness 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 injuries, and that she failed to state a claim for fraud," the court ruled.