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Xun Energy, Inc., A Nevada Corporation v. Lia Kennedy

April 27, 2012

XUN ENERGY, INC., A NEVADA CORPORATION, PLAINTIFF,
v.
LIA KENNEDY, AN INDIVIDUAL, D/B/A LUXEMBARINGS, DEFENDANT.



The opinion of the court was delivered by: J. Phil Gilbert District Judge

MEMORANDUM & ORDER

This matter comes before the Court on the Motion to Dismiss (Doc. 16) filed by the defendant, Lia Kennedy d/b/a Luxembarings (hereinafter "Kennedy"). The plaintiff, Xun Energy Inc., (hereinafter "Xun"), filed a response in opposition on April 2, 2012 (Doc. 26). Kennedy filed a reply brief on April 26, 2012 (Doc. 32).*fn1

I. Background

A. Factual

When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts all allegations as true and draws all reasonable inferences in favor of the plaintiff. Muscarello v. Ogle County Bd. of Com'rs, 610 F.3d 416, 421 (7th Cir. 2010) (citing Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009); Patel v. City of Chicago, 383 F.3d 569, 572 (7th Cir.2004); McCullah v. Gadert, 344 F.3d 655, 657 (7th Cir.2003)). In its complaint, Xun alleges it engaged in discussions with Kennedy regarding Kennedy purchasing a specified amount of Xun's stock. Xun informed Kennedy it intended to use the funds from the sale for oil drilling and exploration and rework/enhancement programs for oil wells in Kentucky and elsewhere. On May 8, 2011, the parties then executed an Escrow Agreement (Doc. 2-1A) in which Xun placed twenty-five thousand dollars ($25,000.00) into an escrow account with a law firm "for the benefit of Defendant." (Doc. 2, para. 7). The Escrow Agreement further stated the parties would later engage in a separate transaction and a copy of the Offer to Purchase Agreement was attached to the Escrow Agreement. If the transaction did not occur within sixty days, the $25,000.00 was to be returned to Xun.

On May 10, 2011 the parties executed an Offer to Purchase Agreement (hereinafter "Agreement"). In the Agreement the parties executed an Offer to Purchase Agreement in which Kennedy would purchase ten million dollars ($10,000,000.00) worth of Xun's common voting stock shares. Kennedy was able to purchase the stock in increments as long as the entire purchase was completed no later than June 24, 2011. The Agreement also allowed Kennedy to terminate the arrangement if the price of the stock dropped below seven cents per share for five consecutive trading days. Xun claims that on the closing day of June 24, 2011, the price of the stock for five consecutive days was $.0846 but Kennedy failed to purchase the stock. Xun further claims that three days later they agreed to extend the purchase date to July 1, 2011, on which date Kennedy still did not purchase the stock. Upon Kennedy's second failure to purchase the stock, Kennedy sent a unilateral amendment of the Agreement to Xun which extended the deadline until July 20, 2011. In spite of the amendment, Kennedy still did not purchase the stock.

On July 22, 2011, Xun sent two letters to the escrow agent to notify them of a breach of the terms of the Agreement and to demand the return of the funds being held in escrow. The same day, Xun sent a letter to Kennedy to notify her of the default and to give her seven days to cure the default. Kennedy allegedly still did not purchase the stock. Xun then filed suit in this Court.

B. Procedural

Xun filed its complaint on November 4, 2011 (Doc. 2). In the complaint, Xun states three claims against Kennedy, breach of contract, promissory estoppel, and fraud in the inducement. Xun seeks actual damages, lost profits, attorneys' fees, and interests. Xun also reserves the right to claim punitive damages. Kennedy has yet to file an answer but instead filed the present motion to dismiss on February 21, 2012 (Doc. 16).

Kennedy argues the case should be dismissed based upon Federal Rules of Civil Procedure 12(b)(6) for failure to state a claim. Although Kennedy failed to provide any legal support for her arguments outside of a citation to the Act itself, she alleges the transaction violated the 1933 Securities Act. 15 U.S.C. § 77a et seq. Kennedy argues that because the agreement violated the 1933 Act, the transaction was void and the suit should be dismissed. Kennedy believes the transaction violated the 1933 Act because she was not an "accredited investor" as described in Rule 501 of the 1933 Act. Further, because Xun did not register the shares it offered to the defendant and was allegedly not exempt from doing so, Kennedy argues she would have had to be a "sophisticated investor" for the sale to go through which she believes she was not. Kennedy's final argument is that the Offer to Purchase Agreement was only an agreement to consider the subscription agreement and therefore was not binding and that the Escrow Agreement limited Xun's remedy (Doc. 16).

In response, Xun argues the Offer to Purchase Agreement was a valid contract to privately purchase and sell the stock. Xun further argues the Agreement did not limit its remedies if there were to be a breach. Finally, it argues the 1933 Act does not apply to the matter because it was a private transaction with an accredited investor which is exempt from the 1933 Act. Xun argues it had no knowledge or way of knowing Kennedy was not an accredited investor as she approached Xun and continuously represented that she had the ability and capability for the ten million dollar transaction. Finally, Xun states it was not required to register the sale under federal law and if it were to be so required, the law mandates it be registered no more than fifteen days after the sale. As the sale did not take place, Xun could not have violated the requirement. Along the same line, Xun puts forth it was not required to register a proposed transaction with Illinois (Doc. 26).

II. Discussion

A. Standard

When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts as true all allegations in the complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To avoid dismissal under Rule 12(b)(6) for failure to state a claim, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). This requirement is satisfied if the complaint (1) describes the claim in sufficient detail to give the defendant fair notice of what the claim is and the grounds upon which it rests and (2) plausibly suggests that the plaintiff has a right to relief above a speculative level. Bell Atl., 550 U.S. at 555; see Ashcroft v. Iqbal, 129 S.Ct. 1937');">129 S. Ct. 1937, 1949 (2009); EEOC v. Concentra Health Servs., 496 F.3d 773, 776 (7th Cir. 2007). "A claim has facial ...


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