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In re First Farmers Financial Litigation

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

October 13, 2016

In Re FIRST FARMERS FINANCIAL LITIGATION

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE U.S. District Court Judge.

         The matter before the Court concerns the claims of Patrick Cavanaugh, not individually, but in his capacity as receiver of the Overall Receivership Estate (the “Overall Receiver”), against Defendants Standley Plastics, Inc. (“Standley Plastics”) and Steven Standley (“Standley”) (collectively, “Defendants”). Defendants have moved to dismiss, (R. 1171), Counts Three and Four of the Overall Receiver's First Amended Complaint, (R. 1145). For the following reasons, the Court denies Defendants' motion.

         BACKGROUND[1]

         In the fall of 2013, Standley wished to expand the operations of his company, which is now known as Standley Plastics. (R. 1145, First Am. Compl., at ¶¶ 8-9.) He therefore sought $13, 000, 000 in capital or financing and engaged a man named Steven Bombola (“Bombola”) to help in this endeavor. (Id. at ¶ 8.)

         Bombola contacted Timothy Fisher (“Fisher”), who at the time was an officer and a 50% owner of First Farmers Financial, LLC (“First Farmers”).[2] (Id. at ¶¶ 1, 9.) The two men were previously involved in an unrelated business transaction, and Bombola “thought that First Farmers might also be interested in either investing or loaning money to Standley Plastics.” (Id. at ¶ 9.) As a result of Bombola's conversations with Fisher, First Farmers made two wire transfers to a Standley Plastics account in a Missouri bank. (Id. at ¶ 10.) The first transfer was for $125, 000 and occurred around October 22, 2013, and the second transfer was for $500, 000 and occurred around December 5, 2013. (Id.) The parties did not execute any written documents in connection to these two transfers. (Id.) Standley Plastics used the money immediately to buy new equipment for its plant in Lamar, Missouri. (Id.)

         In November 2013, Fisher told Bombola that First Farmers would be willing to loan a total of $2, 000, 000 to Standley Plastics (including the $625, 000 that First Farmers had already transferred), but it would provide the additional $1, 375, 000 only if “Standley Plastics executed a promissory note for the entire $2, 000, 000 loan and Standley executed a written guaranty of the amounts due under that note.” (Id. at ¶¶ 11-12.) First Farmers then sent Bombola a number of loan documents, including a promissory note and guaranty of payment, which he forwarded to Standley. (Id. at ¶ 13.)

         The promissory note “established a maturity date of February 27, 2014 . . . for the loan.” (Id. at ¶ 18.) By that date, Standley Plastics owed a flat fee interest payment of $250, 000 along with the principal of the loan. (Id.; id., Ex. A at ¶¶ 1-3.) The promissory note also imposed a late fee of $100, 000 per month. (Id., Ex. A at ¶¶ 3, 7.) Through the guaranty agreement, Standley, in his individual capacity, “guaranteed payment to First Farmers of all of the ‘Obligations' of Standley Plastics to First Farmers under the [promissory note].” (Id. at ¶ 19.)

         Standley executed the promissory note and the guaranty agreement on December 27, 2013. (Id. at ¶ 14.) According to the Overall Receiver, “at the time that Standley executed all of the Loan Documents on behalf of himself and Standley Plastics, he knew that Standley Plastics had no intention of repaying the Note on February 27, 2014, when the principal payment was due, ” and “Standley knew that Standley Plastics would not even have the monies available to repay the Note on February 27, 2014, or at any time thereafter.” (Id. at ¶ 15.) Despite knowing that “neither he nor Standley Plastics intended to abide by the express terms contained in the [promissory note and guaranty agreement], ” Standley “intentionally misled First Farmers by remaining silent, executing the Loan Documents and accepting the additional monies from First Farmers.” (Id. at ¶ 16.)

         After executing the loan documents, First Farmers made two additional wire transfers to Standley Plastics' bank account in Missouri, totaling the remaining $1, 375, 000 of the $2, 000, 000 loan. (Id. at ¶ 17.) Standley Plastics used the money “to buy more equipment for use in [its] Lamar, Missouri plant, and also used the additional funds to generate more revenue.” (Id.)

         February 27, 2014-the promissory note's maturity date-passed without Standley Plastics meeting its payment obligations, as it owed “a lump sum payment of at least $2, 000, 000.” (Id. at ¶ 20.) Standley also did not fulfill the guaranty agreement. (Id. at ¶ 21.) To date, Defendants have not made the outstanding loan payment. (Id. at ¶ 22.)

         On November 12, 2015, the Overall Receiver filed suit against Defendants, alleging breach of the promissory note (“Count One”) and breach of the guaranty agreement (“Count Two”). (R. 659-1, Compl.). On July 19, 2016, the Overall Receiver filed a motion for leave to file a first amended complaint, (R. 1133), which the Court granted, (R.1141). In the First Amended Complaint, in addition to the two breach of contract claims from the original complaint (Counts One and Two), the Overall Receiver alleged Fraud in the Inducement (“Count Three”) and Unjust Enrichment (“Count Four”). (R. 1145.)

         In Count Three, the Overall Receiver seeks rescission of the promissory note, $2, 000, 000 in damages, punitive damages, and attorneys' fees and costs. (Id. at ¶ 45.) In Count Four, the Overall Receiver seeks “at a minimum, $2, 000, 000, ” as well as attorneys' fees and costs. (Id. at ¶ 51.)

         Defendants filed the current motion to dismiss Counts Three and Four, (R. 1171), which the Court now considers.

         LEGAL STANDARDS

         I. Federal Rule of Civil ...


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