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Typenex Co-Investment, LLC v. Solar Wind Energy Tower, Inc.

United States District Court, N.D. Illinois, Eastern Division

July 20, 2015

TYPENEX CO-INVESTMENT, LLC, Plaintiff/Counter-Defendant,
v.
SOLAR WIND ENERGY TOWER, INC., Defendant/Counter-Plaintiff, and COLUMBIA STOCK TRANSFER COMPANY, Defendant

Page 1018

[Copyrighted Material Omitted]

Page 1019

          For Typenex Co-Investment LLC, a Utah limited liability company, Plaintiff: Jeremy C. Reutzel, LEAD ATTORNEY, PRO HAC VICE, Bennett Tueller Johnson & Deere, Salt Lake City, UT; Brigman Harman, PRO HAC VICE, Bennett Tueller Johnson & Deere, Salt Lake City, UT; Scott L. Warner, Sunghee W Sohn, Francezk Radelet P.c., Chicago, IL.

         For Solar Wind Energy Tower Inc, a Nevada corporation, Defendant, Counter Claimant: Thomas G. Gardiner, LEAD ATTORNEY, Gardiner Koch Weisberg & Wrona, Chicago, IL; Barry C. Owen, Gardiner Koch Weisberg Wrona, Chicago, IL; Micah Jon Hughes, Gardiner Koch Weisber & Wrona, Chicago, IL.

         For Columbia Stock Transfer Company, Defendant: Barry C. Owen, Gardiner Koch Weisberg Wrona, Chicago, IL; Micah Jon Hughes, Gardiner Koch Weisber & Wrona, Chicago, IL.

         For Columbia Stock Transfer Company, Counter Claimant: Barry C. Owen, Gardiner Koch Weisberg Wrona, Chicago, IL.

         For Typenex Co-Investment LLC, a Utah limited liability company, Counter Defendant: Jeremy C. Reutzel, LEAD ATTORNEY, Brigman Harman, Bennett Tueller Johnson & Deere, Salt Lake City, UT; Scott L. Warner, Franczek Radelet PC, Chicago, IL.

         For Solar Wind Energy Tower Inc, a Nevada corporation, Counter Claimant: Micah Jon Hughes, Gardiner Koch Weisber & Wrona, Chicago, IL.

Page 1020

         Memorandum Opinion and Order

         Gary Scott Feinerman, United States District Judge.

         In 2013, Solar Wind Energy Tower, Inc. ("SWET" ), gave Typenex Co-Investment, LLC, a convertible note in exchange for a $500,000 loan. When SWET refused to convert the debt into equity, Typenex sued SWET and its transfer agent, Columbia Stock Transfer Company, for breach of contract. Docs. 1, 24. SWET answered and counterclaimed, alleging that Typenex hoodwinked it into the deal. Doc. 27. Typenex moved to dismiss the counterclaims, Doc. 29, and the court denied that motion as moot when SWET filed amended counterclaims, Docs. 39, 43. Typenex now moves to dismiss the amended counterclaims and to strike SWET's eleventh affirmative defense, which alleges fraud in the inducement. Doc. 40. The motion is granted as to the contract counterclaims and denied as to the fraud counterclaims and affirmative defense.

         Background

         On a Rule 12(b)(6) motion, the court must accept the counterclaims' well-pleaded factual allegations, with all reasonable inferences drawn in SWET's favor, but not their legal conclusions. See Smoke Shop, LLC v. United States, 761 F.3d 779, 785 (7th Cir. 2014). The court must also consider " documents attached to the [counterclaims], documents that are critical to the [counterclaims] and referred to in [them], and information that is subject to proper judicial notice," along with additional facts set forth in SWET's brief opposing dismissal, so long as those additional facts " are consistent with the pleadings." Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1020 (7th Cir. 2013) (internal quotation marks omitted). The facts are set forth as favorably to SWET, the non-movant, as those materials allow. See Meade v. Moraine Valley Cmty. Coll., 770 F.3d 680, 682 (7th Cir. 2014).

         SWET is a publicly traded company registered in Nevada that develops alternative energy technologies. Doc. 39 at ¶ 7. Typenex is a Utah-based company whose principal

Page 1021

place of business is Illinois. In early 2013, Typenex approached SWET with an offer of financing. Id. at ¶ ¶ 8-13. SWET was receptive but sought to clarify the deal's timing. Id. at ¶ 14. Typenex provided a " Term Sheet," which proposed that SWET issue Typenex a $550,000 convertible note in exchange for " [c]ash in the amount of $100,000 ... and $400,000 in 8% secured notes." Doc. 39-1 at 1. The Term Sheet continued:

The notes issued by [Typenex] will be due 12 months from the Initial Funding Date. The Investor Notes [also called the " Secured Buyer Notes" or " Buyer Notes" ] will be prepaid based on the following schedule:
o $100,000 6 months after Closing
o $100,000 8 months after Closing
o $100,000 10 months after Closing
o $100,000 12 months after Closing

Ibid. (emphasis added). The same day that Typenex provided SWET with the Term Sheet, Typenex's agent told SWET's CEO that Typenex would provide funding pursuant to this schedule. Doc. 39 at ¶ ¶ 15-16. The next day, Typenex confirmed by email that " the buyer notes are to be prepaid based on the schedule outlined in the term sheet," adding that funding was often provided ahead of schedule. Id. at ¶ 17.

         The Term Sheet contained a space for both parties to execute the document and provided that by signing, the parties " acknowledg[ed] their mutual consent to the above terms and their intention to negotiate in good faith the contemplated transaction." Doc. 39-1 at 4. At the same time, the Term Sheet stated that it was " prepared for discussion purposes only ...[,] is an indication of interest only, not an offer to sell or purchase securities, and is not binding on the parties pending execution of definitive agreements." Ibid. Typenex and SWET spent the next few days discussing the Term Sheet, and executed it on April 24, 2013. Doc. 39 at ¶ ¶ 18-19. SWET made clear that it needed to conclude the final agreement by May 13, 2013. Id. at ¶ ¶ 70-71. (The counterclaims initially put the ...


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