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International Capital Group, LLC, A Delaware Corporation v. Ed Starrs

January 10, 2011

INTERNATIONAL CAPITAL GROUP, LLC, A DELAWARE CORPORATION, PLAINTIFF,
v.
ED STARRS, AN INDIVIDUAL, DEFENDANT.



The opinion of the court was delivered by: Marvin E. Aspen, District Judge:

MEMORANDUM OPINION AND ORDER

Presently before us is defendant Ed Starrs's Motion to Dismiss the amended complaint filed by International Capital Group, LLC ("ICG"). Starrs contends that ICG has failed to state claim against him because the loan agreement between the parties does not impose personal liability under the circumstances. As set forth below, we deny the motion.

FACTUAL BACKGROUND

On approximately July 29, 2008, Starrs borrowed $750,000 ("Initial Loan") from ICG pursuant to their Full Recourse Loan and Security Agreement ("Agreement"). (Compl. ¶ 7.) As collateral for the Initial Loan, Starrs transferred certain of his shares in MyEcheck, Inc. (Id.)

The Agreement provided that this Initial Loan of $750,000 would mature 120 days after funding. (Compl., Ex. A, Agr. § 2.2.) The parties contemplated that at that time, they would enter into a subsequent, non-recourse loan agreement involving the same collateral ("New Loan"), rather than require Starrs to repay the loan at maturity. (Id.) No New Loan was executed, however.

ICG alleges that in about June 2009, the collateral securing the Initial Loan depreciated significantly. (Compl. ¶ 11.) Pursuant to § 3.3 of the Agreement, ICG demanded that Starrs put up additional collateral. (Id. ¶ 12.) Starrs failed to do so, allegedly triggering a default under the Agreement. (Id. ¶¶ 12--14.) ICG claims that, although it may sell the collateral to satisfy the Initial Loan obligations, Starrs is personally responsible for any shortfall between the proceeds of such a sale and the outstanding debt. (Id. ¶¶ 15--18; Agr. §§ 8.2--8.3.) According to the Complaint, Starrs refuses to repay the Initial Loan despite ICG's repeated requests. (Compl. ¶¶ 17--18.) Moreover, the collateral lacks sufficient value to satisfy the debt. (Id.) ICG thus seeks $750,000 from Starrs, plus interest, attorneys' fees and costs. (Id. at 6.)

In his motion, Starrs challenges ICG's right to recovery, arguing that the pertinent provisions cited by ICG simply do not apply. Starrs essentially contends that because the parties failed to execute a New Loan, different terms governed their relationship-terms that do not impose any personal liability on him. (See Mem. at 4--5; Reply at 3--4.) Our inquiry will thus focus on the Agreement's specific provisions, which we shall describe and evaluate below.

STANDARD OF REVIEW

A motion to dismiss is meant to test the sufficiency of the complaint, not to decide the merits of the case. Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). Accordingly, a court may grant a motion to dismiss under Rule 12(b)(6) only if a complaint lacks "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974 (2007); see Ashcroft v. Iqbal, - U.S. -, 129 S. Ct. 1937, 1949--50 (2009) (stating that a court's determination "whether a complaint states a plausible claim for relief will . . . be a context-specific task"); Killingsworth v. HSBC Bank Nev., N.A., 507 F.3d 614, 618--19 (7th Cir. 2007); EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776--77 (7th Cir. 2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949. Although a sufficient complaint thus need not give "detailed factual allegations," it must provide more than "labels and conclusions, and a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555, 127 S. Ct. at 1964--65; see Iqbal, 127 S.Ct. at 1949; see also Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009); Killingsworth, 507 F.3d at 618--19. In evaluating a motion to dismiss, we must accept all well-pleaded allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Iqbal, 127 S. Ct. at 1949--50; Bissessur v. Ind. Univ. Bd. of Trs., 581 F.3d 599, 602--03 (7th Cir. 2009); Brooks, 578 F.3d at 581.

ANALYSIS

I. The Agreement's Essential Terms

Pursuant to § 2.2 of the Agreement, Starrs's loan matured 120 days after funding, on approximately November 28, 2008. In their Agreement, the parties clearly and repeatedly expressed their intent to carry Starrs's collateral forward into a New Loan in lieu of repayment at the Initial Loan's date of maturity. (See Agr. §§ 2.2, 9.1.) This motion focuses on what terms governed the parties' relationship after they failed to consummate the intended New Loan.

The Agreement explicitly addresses such a situation. Section 2.5 states, as one scenario, that if the parties fail to execute the New Loan but Starrs repays the Initial Loan and any related fees or interest, ICG will release the collateral. (Id. § 2.5.) As a second scenario, if the parties fail to execute a New Loan and Starrs does not timely repay the Initial Loan and related costs, ICG "may take full possession of the [c]ollateral and use it for any purposes as set forth in Section 8." (Id.) This second scenario came to pass when Starrs declined to repay the loan in full on or at the maturity date. ICG thus has a right to the collateral and may "use it for any purposes as set forth in Section 8." (Id.)

Section 8 governs defaults under the Agreement and describes ICG's remedies in the event of default. (See Agr. §§ 8.1--8.3.) Section 8.2 provides, in pertinent part, that ICG "without being required to give any notice . . . may sell any portion or all of any [c]ollateral, the proceeds of which sale shall be applied to the payment of all outstanding debts obligations." (Agr. § 8.2.) It further states that "[a]ny remaining deficiency or shortfall shall be the responsibility of [Starrs], as further specified herein." (Id.) Section 8.3 then explains that Starrs ...


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