The opinion of the court was delivered by: Sue E. Myerscough United States District Judge
Monday, 29 April, 2013 09:29:34 AM
Clerk, U.S. District Court, ILCD
This matter comes before the Court on Plaintiff H.D. Smith Wholesale Drug Co.'s ("H.D. Smith") Partial Motion for Summary Judgment (d/e 61) on Counts I through III of H.D. Smith's First Amended Complaint. H.D. Smith's Motion is GRANTED because Defendant Dennis Crawford, d/b/a Crawford Pharmacies ("Crawford"), has breached terms of the duly executed First Promissory Note (Count I), Second Promissory Note (Count II), and Primary Vendor Agreement (Count III). Further, Crawford agrees to forego his unclean hands affirmative defense and fails to support his Counterclaim that disputes the amount H.D. Smith says Crawford owes for Crawford's breach of the Promissory Notes and Primary Vendor Agreement. H.D. Smith shall substantiate the amounts owed by Crawford to H.D. Smith at a hearing in open court on May 13, 2013 at 3:00 p.m.
H.D. Smith is a nationwide wholesale pharmaceutical company headquartered in Springfield, Illinois. Until about October 1, 2011, Crawford owned and operated retail pharmacies in Texas at these locations: 213 E. San Patricio, Mathis, Texas 78368; 907 North Main Street, Bandera, Texas 78003; 19244 McDonald St., Lytle, Texas 78052; 407 E. Orange, Orange Grove, Texas 78372; and 8103 N. State Hwy 16, Poteet, Texas 78065.
Between August 2, 2007 and November 23, 2011, H.D. Smith and Crawford had an ongoing business relationship where Crawford purchased health products on account from H.D. Smith. Crawford purchased health products at agreed rates and pursuant to credit terms detailed in credit and security agreements between Crawford and H.D. Smith. Crawford sold these health products at his retail pharmacies.
Crawford voiced concerns about his debt to H.D. Smith. Crawford believed he should have received additional discounts and different pricing on some health products. Crawford spoke with H.D. Smith about a payment agreement and the terms of the parties' business relationship going forward.
In 2010 and 2011, H.D. Smith and Crawford began negotiating the terms of new promissory note agreements and a new pricing structure. As a negotiating tactic, Crawford intentionally misrepresented to H.D. Smith that he had legal counsel. On or around June 6, 2011, Crawford received draft promissory notes similar to those ultimately executed.
A. The Parties Duly Executed Two Promissory Notes to Help Crawford Manage His Debt to H.D. Smith On August 17, 2011, at Crawford's request, the parties met at H.D. Smith's office in Ft. Worth, Texas. Crawford and David Watkins, former Chief Financial Officer for H.D. Smith, duly executed the First Promissory Note for $2,514,739.95 with a yearly interest rate of 6.0% and the Second Promissory Note for $474,972.04 with a yearly interest rate of 0%. See d/e 20, Ex. 1 at 3-6, 11-14. The Promissory Notes set up a plan for Crawford to pay off his debt. H.D. Smith also forgave $474,974.04 of Crawford's debt. See d/e 61 at 13, 27.
Illinois law applies to the terms of the Promissory Notes. The Payment provision of the First Promissory Note states:
PAYMENTS. Borrower shall pay principal and interest in 36 equal weekly installments of $18,000.00 payable on Friday of each week beginning on 8/26/11, Borrower shall then pay principal and interest in 82 equal weekly installments of $25,000.00 payable on Friday of each week, with a final payment of $7,962.73 on 11/29/13 until the balance is paid in full.
Both Promissory Notes also contain these provisions: DEFAULT. Lender may terminate this Promissory Note, accelerate and declare the entire balance then outstanding under this Agreement to be immediately due and payable, suspend or cease any future credit and/or shipments, commence suit to recover all sums due, commence a relevant action and charge the default interest and reasonable costs of collection, including, but not limited to, the reasonable legal fees incurred by Lender in the event that any event of default shall occur. Events of default are as follows: (a) Any fraud or material misrepresentation in connection with any information provided in the credit application, and/or any other Agreement incorporated herein by express reference, by Borrower and/or any cross-corporate guarantor; (b) Borrower does not meet the payment terms of this Agreement and/or the payment terms of any trade debt incidental to this Agreement; (c) Any Cross-corporate guarantor does not meet the payment terms of any agreement it has executed and delivered to Lender and/or fails to meet the payment terms of any trade debt balance owed to Lender; (d) Borrower or any cross-corporate guarantor fails to satisfy any term, condition, and/or covenant of this Agreement or any Agreement incorporated herein by express reference; (d) any action or conduct adversely affects the value of the collateral, the collateral of the Lender's rights in the collateral; (e) any Bulk transfer outside the ordinary course of business; (f) failure of Maker to meet minimum purchases of $1,900,000.00 per month, in any single month during term of this Note; and/or (g) filing by or against Borrower or any Guarantor of a petition in bankruptcy or for a receiver for Borrower or Guarantor or any property thereof.
BULK TRANSFER PROHIBITION.
Any transfer of the Borrower's Assets in bulk outside the ordinary course of business shall be a term of default under this Agreement. In the event that Borrower shall intend to make a transfer in bulk of any collateral, it shall give the Lender twenty (20) days advance notice of such transfer, including all transferees, the assets being transferred, the consideration being paid, and the date and place of the closing. All sums due to the Lender under this Agreement shall become accelerated and shall become immediately due upon any bulk transfer. Borrower hereby agrees not to accept any proceeds of any sale unless certified funds have been tendered directly by the transferee to the Lender to satisfy all debts then due or overdue and owing.
See d/e 20, Ex. 1 at 4, 12.
Between August 26, 2011 and October 31, 2011, Crawford failed to make two weekly installment payments of $18,000.00 on the First Promissory Note. Crawford made his last payment on the First Promissory Note on October 31, 2011. On November 2, 2011, H.D. Smith sent and Crawford received an acceleration notice.
Crawford owes H.D. Smith at least $1.45 million on the First and Second Promissory Notes. H.D. Smith is entitled to attorney's fees, court costs, and interest pursuant to the ...