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