Powell Stern Capital, Inc. v. Standley Plastics, Inc.

          MEMORANDUM OPINION

          Charles P. Kocoras United States District Judge.

         Before the Court is Defendant Standley Plastics, Inc.'s (“Standley”) Motion to Dismiss Plaintiff Powell Stern Capital, Inc.'s (“Powell”) Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the motion is denied.

         BACKGROUND

         The following facts are taken from Powell's complaint and assumed to be true for purposes of this motion. Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995). The Court draws all reasonable inferences in Powell's favor. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).

         Powell is an Illinois corporation that is in the business of finding equity investors and lenders to secure capital for companies and itself. Standley is a Missouri corporation that manufactures compounds and composites using recyclable plastics, with a specialty in cleaning, shredding, and pelletizing plastic liners involved in the processing of meat and poultry.

         In May of 2017, Steven Bombola (“Bombola”) - a consultant for Standley - engaged Powell to secure capital for Standley.^[1] On December 3, 2017, the parties entered into a Consulting Agreement.^[2] The Consulting Agreement, in relevant part, states that the Powell would use its “best efforts” to present Standley “with the opportunity to negotiate directly with potential equity investors and lenders [ ] for the purpose of obtaining an equity investment, debt, or any combination of the thereof ....” The Consulting Agreement provided that Powell would receive a consulting fee of five percent “of any monies received by [Standley], whether debt or equity, from a capital source introduced to [Standley] by [Powell].”

         The Consulting Agreement also afforded Powell a “Right of Refusal.” Specifically, Standley was required to “notify [Powell] promptly of any inquiries, proposals, or offers made by third parties” to Standley and “furnish [Powell] the terms thereof (including, without limitation, the type of consideration offered and the identity of the third-party).” Powell was also afforded “the right to match the terms of any proposed transaction in lieu of such parties.” The Consulting Agreement also contemplated a cancellation provision, which stated that “[e]ither party has the right to cancel this agreement upon (45) days' written notice if it is deemed that appropriate progress has not been made towards the financing of the Transaction.”

         Powell subsequently devoted a substantial amount of time as part of its due diligence.^[3] On or about September 27, 2017, Standley asked Powell to assemble a buyer's group to purchase Standley. To solidify this request, the parties executed a Letter of Intent (“LOI”) on December 1, 2017.^[4] The LOI confirmed the parties' “understanding … with respect to the principal terms and conditions under which [Powell] and its capital source will acquire 100% of the outstanding capital stock of [Standley] and all of its assets.” The LOI contemplated two closings.

         For the initial closing, “[Powell] propose[d] to invest or assist securing capital for the benefit of [Standley] in the initial amount of up to $11.5 million of debt and/or equity of [Standley].” Following the initial closing, the LOI afforded Powell with a 90-day option to purchase additional stock in Standley. Specifically, the LOI noted: “[f]or each $1 million advanced by [Powell] (in its sole discretion) (assuming no equity is secured by [Powell] as contemplated above), [Powell] shall receive an additional 1% in stock of SPI.”

         Section 4 of the LOI addressed its binding effect. Section 4(a) states, “[e]xcept as provided in Section 4(b) below, this letter does not create, and is not intended to create any binding legal or contractual obligations on the part of either [Powell] or [Standley].” Section 4(b) states, notwithstanding 4(a), “Sections 1.3.5 and the Exclusive Stock Option of this Letter are intended to create binding legal and contractual obligations of the parties with respect to the matters set forth therein.”

         Section 1 states:

Disclosures. The Debquity and Investment/Acquisition may be disclosed by [Standley] and/or [Powell] to (as applicable) their respective Boards of Directors, personnel, and legal, accounting and financial advisors on a “need-to-know” basis, but none of the parties nor their agents shall make any other disclosures of the Acquisition … without the prior written consent of the other party unless, in the opinion of either party's counsel, it is required by applicable law, regulation, judicial or administrative order to do so and the disclosing party promptly notifies the other party of such disclosure and the reason therefore. The parties will use reasonable efforts to cooperate with each other in making any disclosures as to the Acquisition.”

         Section 3 states:

Exclusivity. [Standley] acknowledges that [Powell] will incur significant expense in connection with its due diligence review and preparation and negotiation of the Purchase Agreement. As a result, upon execution of this Letter, [Standley] shall terminate any existing discussions or negotiations with, and shall cease to provide information to or otherwise cooperate with, any party other than [Powell] … with respect to the Acquisition Transaction (as defined below). In addition, from and after the date hereof, [Standley] will [not] directly or indirectly encourage, solicit, initiate, have or continue any discussions or negotiations with or participate in any discussions or negotiations with or provide any information to or otherwise cooperate in any other way with, or enter into any agreement, letter of intent or agreement in principle with, or facilitate or encourage any effort or attempt by any [entity] (other than [Powell]) concerning any merger, joint venture, recapitalization, reorganization, sale of substantial assets, sale of any shares of capital stock, investment, or similar transaction involving [Standley] (each, an “Acquisition Transaction”). [Standley] shall notify [Powell] promptly of any inquiries, proposals, or offers made by third parties to [Standley] with respect to an Acquisition Transaction and furnish ...