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Bank of America, N.A v. Illumination Station

March 27, 2012


The opinion of the court was delivered by: Judge Joan H. Lefkow


Bank of America, N.A. ("BOA") filed a five count complaint against Illumination Station, Inc. ("ISI") seeking to collect on account receivables that ISI allegedly owes to non-party Berman Industries, Inc. ("Berman Industries"). Berman Industries is no longer in business and BOA purchased the rights to the receivables at a public auction. ISI counterclaimed, seeking to setoff any amount owed by ISI to BOA from the amount that Berman Industries allegedly owes to ISI. ISI's six count counterclaim includes claims for breach of contract, breach of warranty, unjust enrichment, deceptive trade practices, fraud, and a request for declaratory judgment. Before the court is BOA's motion to dismiss ISI's counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the motion (# 54) is granted in part and denied in part.*fn1


ISI is an Arkansas corporation with its principal place of business in Harrison, Arkansas. BOA is a national banking corporation with its principal place of business in Charlotte, North Carolina. ISI has been in the wholesale lighting and home furnishing business for many years and developed what it believed was a good and longstanding relationship with its exclusive supplier, Berman Industries. Berman Industries is an Illinois corporation with its principal place of business in Chicago, Illinois. Pursuant to the parties' practice, Berman Industries was responsible for paying all ocean freight and customs charges and all other costs associated with shipping. If ISI discovered damaged or defective products, it would notify Berman Industries and receive an appropriate setoff or credit for the damaged or defective goods. Any charge-backs, quality control problems and other adjustments were handled by the parties through adjustments to Berman Industries's bills to ISI.

During its existence, Berman Industries borrowed millions of dollars from BOA or its predecessor LaSalle Bank National Association and eventually defaulted on its loans. On May 24, 2007, BOA claims that ISI granted Berman Industries a security interest in certain ISI property and that Berman Industries perfected this interest by filing a UCC-1 financing statement, facts which ISI disputes. (Answer ¶¶ 10, 11; Compl. Ex. A & B; Countercl. ¶¶ 34--38.) In April 2009, Berman Industries structured a series of transactions designed to give the appearance that it had ceased business operations. On April 7, 2009, Berman Industries entered into a trust agreement and assignment for the benefit of creditors whereby David Abrams was appointed as trustee-assignee of Berman Industries. Thereafter, Abrams's agents and BOA's attorneys made certain demands for inflated and over-stated accounts receivable allegedly owing from ISI to Berman Industries. ISI denied the validity and amount of these claims.

In accordance with the parties' prior practices, ISI placed a number of orders with Berman Industries in early 2009. In the months preceding Abrams's appointment, ISI President Steve Pederson learned of Berman Industries's financial troubles and became hesitant to place additional orders with the company. In March 2009, Berman Industries officer Robert Berman met with Pederson and assured him that he would invest additional money in Berman Industries in an effort to persuade Pederson to place additional orders with the company. On April 7, 2009, Berman Industries President Ron Armstrong met with Pederson and told him that he also would invest money into Berman Industries and that he personally stood behind ISI's orders. Relying on these representations, ISI paid for new orders and products from Berman Industries. Neither Berman Industries nor Armstrong invested additional money into the company, nor did they intend to stand behind ISI's orders. Instead, Armstrong organized two successor companies and continued to service Berman Industries's customers using products and information obtained from Berman Industries. Berman Industries ceased operations in April 2009.

On October 30, 2009, BOA conveyed its purported security interest in certain ISI assets and accounts ("the ISI receivables") to itself through a secured party's bill of sale. (Countercl. Ex. A.) BOA claims to have acquired the ISI receivables at a public auction held pursuant to Uniform Commercial Code ("UCC") § 9-617,*fn3 which ISI disputes. (Answer ¶¶ 21--23.)

Thereafter, BOA enabled Berman and Armstrong and their related entities to remain in business as the successors to Berman Industries and declined to pursue collection of certain receivables owed by one or more entities with which Berman and Armstrong were still doing business.

When Berman Industries ceased doing business, ISI was left with a number of unfulfilled and defective orders for which billing adjustments were required. ISI claims that it incurred $1,641,432.64 in freight, custom, shipping, replacement and other costs that Berman Industries should have paid or credited against ISI's accounts. When BOA filed the present action to collect on the ISI receivables, ISI counterclaimed seeking to recover this amount from BOA under the theory of imputed liability under UCC § 9-404. BOA now moves to dismiss ISI's counterclaim in its entirety.


A motion to dismiss under Rule 12(b)(6) challenges a complaint for failure to state a claim upon which relief may be granted. See Fed. R. Civ. P. 12(b)(6); Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). In reviewing a Rule 12(b)(6) motion, the court takes as true all facts in the complaint and draws all reasonable inferences in favor of the plaintiff. Dixon v. Page, 291 F.3d 485, 486--87 (7th Cir. 2002). To survive a Rule 12(b)(6) motion, the complaint must provide the defendant with notice of the claims and establish that the requested relief is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009); see also Bell Atl. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). At the same time, the plaintiff need not plead legal theories. Hatmaker v. Mem'l Med. Ctr., 619 F.3d 741, 742--43 (7th Cir. 2010). Rather, it is the facts that count.


BOA argues that ISI's counterclaim must be dismissed because (1) BOA is a good faith transferee under UCC ยง 9-617 and therefore ISI may not impute Berman Industries's conduct to BOA; and (2) ISI fails ...

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