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JTG Equities, LLC v. Greenberg

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

July 3, 2019

JTG Equities, LLC & Joshua Goldstein, Plaintiffs,
v.
Joel Greenberg & JG Urban R2, LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

          Honorable Thomas M. Durkin, United States District Judge.

         Plaintiffs JTG Equities (“JTG”) and Joshua Goldstein bring this action against defendants Joel Greenberg and JG Urban R2 for breach of contract, fraud, and several related claims based on a loan purchase agreement the parties entered into in 2013. The defendants filed a motion dismiss the claims alleging fraud (Counts III-V).[1] For the following reasons, their motion is denied.

         Legal Standard

         A Rule 12(b)(6) motion challenges the “sufficiency of the complaint.” Berger v. Nat. Collegiate Athletic Assoc., 843 F.3d 285, 289 (7th Cir. 2016). A complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), sufficient to provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Boucher v. Fin. Sys. of Green Bay, Inc., 880 F.3d 362, 366 (7th Cir. 2018) (quoting Iqbal, 556 U.S. at 678). In applying this standard, the Court accepts all well-pleaded facts as true and draws all reasonable inferences in favor of the non-moving party. Tobey v. Chibucos, 890 F.3d 634, 646 (7th Cir. 2018).

         Background

         This case arises from a loan purchase agreement between defendant Joel Greenberg and plaintiff JTG. For background, Greenberg was the sole member of the now dissolved company JG Urban R2, LLC. R. 1 ¶ 6. The two members of JTG are plaintiff Joshua Goldstein and JTG Holdings Corp. Id. ¶ 1.

         In 2013, Greenberg and JTG entered into a loan purchase agreement whereby Greenberg agreed to sell a series of promissory notes to JTG in exchange for $1, 800, 000. Id. ¶ 12-13. The parties further agreed that JTG's interest in the notes would be converted into a 35% voting interest in Urban R2 Development Company (Urban R2), of which JG Urban R2 was a member. Id. ¶¶ 10, 17. Meanwhile, JG Urban R2 would relinquish its 35% membership interest in Urban R2 and instead assume a 12% non-voting profit participation interest. Id. ¶ 18. In January 2014, JTG paid the final installment of the purchase price and acquired JG Urban R2's 35% interest in Urban R2.[2] Id. ¶¶ 21-22.

         Prior to entering the agreement, Greenberg provided JTG with a series of documents purporting to represent Urban R2's financial condition. Id. ¶ 24. This included a document Greenberg claimed to be Urban R2's balance sheet as of February 2013, which listed Urban R2's assets at $123, 705, 168 and its liabilities as $2, 740, 013. Id. ¶¶ 25-27. The balance sheet's assets included:

• “Accounts Receivable-Q Lotus” in the amount of $36, 421, 016;
• “Investment in Chicago Fund, LLC” in the amount of $2, 799, 628;
• “Investment in Wheeling Project” in the amount of $110, 648;
• “Silica Mining Claim” in the amount of $84, 000, 000

Id. ¶ 26. Unbeknownst to JTG at the time, these assets were worthless. Id. ¶¶ 29-33. Specifically, Urban R2 had already conveyed its interest in the Chicago Fund to a third party, forfeited its interest in the Wheeling Project for failing to pay required fees, and never had any interest or claim to the Silica mining rights. Id. ¶¶ 31-33. Further, Greenberg owned and controlled Q Lotus and knew the company had no ability to pay any portion of the money it owed to Urban R2. Id. ¶ 29. The balance sheet also understated Urban R2's liabilities, including listing a “Note Payable-Sterling” in the amount of $640, 000 when Urban R2 actually owed Sterling over $10, 000, 000. Id. ¶ 34.

         Greenberg also provided JTG with a 2011 letter from Green Bear Capital, LCC that valued Urban R2 between $100 million and $187 million based on its investments in the Wheeling Project and the Chicago Fund. Id. ¶ 35. Greenberg failed to disclose Urban R2 no longer held those investments. Id. In addition, Greenberg gave JTG a business plan representing ...


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