Clay Fin. LLC v. Mandell

• Decision Date: 28 September 2018
• Docket Number: No. 16 C 11571,16 C 11571
• Parties: CLAY FINANCIAL LLC, et al., Plaintiffs, v. MICHAEL S. MANDELL, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

CLAY FINANCIAL LLC, et al., Plaintiffs, v. MICHAEL S. MANDELL, et al., Defendants.

No. 16 C 11571

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

September 28, 2018

Hon. Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiffs¹ are companies, trustees, and two individuals that sued Defendants² alleging thirty-two counts in connection with investment loans made to the Defendant companies in exchange for promissory notes. (Dkt. 1). Specifically, Plaintiffs allege twenty-five counts of breach of contract (Counts I-XXV) against Defendants Finance Factor, Sky3 and Strategic Innovations (the "Mandell Companies"); one count of common law fraud and fraudulent misrepresentation against Mandell and the Mandell Companies (Count XXVI), one count of a violation of the Illinois Consumer Fraud and Deceptive Practices Act (ICFA), 815 ILCS § 505/2 against Mandell and the Mandell Companies (Count XXVII); one count of negligent misrepresentation against Mandell and the Mandell Companies (Count XXVIII); one count of unjust enrichment against Mandell and Field (Count XXIX); one count of promissory estoppel against Mandell and the Mandell Companies (Count XXX); one count of alter ego liability against Mandell (Count XXXI); and one count of conspiracy to defraud against all Defendants (CountXXXII). Id. Plaintiffs obtained a default judgment against Defendants Mandell and one of his companies, Strategic Innovations. (See Dkt. 30). Plaintiffs then filed three Motions for Partial Summary Judgment against the remaining Defendants, seeking judgment as a matter of law on the breach of contract claims against Defendant Sky3 (Counts V, VIII, XII, XV, XX and XXV) (Dkt. 74), on the breach of contract claims against Defendant Finance Factor (Counts I-III, VI-VII, IX-XI, XII, XVI-XVII, XXI-XXIV) (Dkt. 78), on the common law fraud and ICFA claims (Counts XXVI and XXVII) against Defendant Sky3 and on the conspiracy to defraud claim (Count XXXII) against Defendants Sky3, Field, KTG LLC and KTG Inc. (Dkt. 82).³ For the following reasons, the Court grants Plaintiffs' Motion for Partial Summary Judgment (Finance Factor Contract Claims) [78], grants Plaintiffs' Motion for Partial Summary Judgment (Sky3 Contract Claims) [74], and grants in part and denies in part Plaintiffs' Motion for Partial Summary Judgment (Common Law Fraud; Illinois Consumer Fraud Act; Conspiracy to Defraud) [82].

BACKGROUND

The Court takes the relevant facts from the parties' Local Rule ("LR") 56.1 statements of undisputed material facts and supporting exhibits.⁴ The following facts are supported by the record and, except where otherwise noted, are undisputed. The Court views these facts in the light most favorable to the non-movants—here, Defendants—and draws all reasonable inferences in theirfavor. See Scott v. Harris, 550 U.S. 372, 378 (2007); Horton v. Pobjecky, 883 F.3d 941, 948 (7th Cir. 2018).

However, Sky3 failed to file a response to Plaintiffs' Statement of Material Facts (Dkt. 75) filed in support of Plaintiffs' Motion for Partial Summary Judgment on the breach of contract claims against Sky3. (Dkt. 76). Several of these statements of material fact overlap with those made in Plaintiffs' Statement of Material Facts (Fraud Claims) (Dkt. 84) to which Sky3 did file a response jointly with Defendants Field, KTG LLC and KTG Inc.—but not all do. Local Rule 56.1(b) requires an opposing party to a motion for summary judgment to file a concise response the movant's statement of material facts that contains a response to each numbered paragraph in the moving party's statement. LR 56.1(3). Failure to do so with respect to any of the material facts set forth in the moving party's statement constitutes an admission of those uncontested facts. Id. ("All material facts set forth in the statement required of the moving party will be deemed to be admitted unless controverted by the statement of the opposing party."); see also Ammons v. Aramark Uniform Serv., Inc., 368 F.3d 809, 817 (7th Cir.2004) ("[A] district court is entitled to expect strict compliance with Rule 56.1."); United States v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991) ("Judges are not like pigs, hunting for truffles buried in briefs"). Federal Rule of Civil Procedure 56(e) similarly provides that if the nonmoving party "fails to properly address another party's assertion of fact as required by Rule 56(c), the court may . . . consider the fact undisputed for the purposes of the motion." Fed. R. Civ. P. 56(e)(2). Therefore, the Court construes Sky3's failure to respond whatsoever to certain of the material facts set forth in Plaintiffs' statement filed in support of the motion on the breach of contract claims against Sky3 (see Dkt. 76) as an admission of those facts. See United States v. Funds in Amount of Thirty Thousand Six Hundred Seventy Dollars, 403 F.3d 448, 454 (7th Cir. 2005) (defendant failed to dispute any material factsasserted by government in support of summary judgment, so facts were deemed to be admitted); Smith v. Lamz, 321 F.3d 680, 683 (7th Cir. 2003) ("We have consistently held that a failure to respond by the nonmovant as mandated by the local rules results in an admission.").

I. Plaintiffs

Plaintiffs are individuals and related entities that seek, among other things, to enforce various promissory notes issued to them by Defendants Finance Factor and Sky3 between November 2014 and January 2016. (Dkt. 124 at ¶ 16). Specifically, Plaintiffs Clay Financial and Woodbourne are limited liability companies made up of various trusts and individuals. (Id. at ¶¶ 1, 2). Clay Financial's members include the Dominique M. Schmidt Irrevocable Trust, the Carol J. Schwab Irrevocable Trust, Julie Schwab-Schmidt, and Jeremie Schwab-Schmidt. (Id. at ¶ 1). Woodbourne's members include Carol Schwab, Ellen Schwab, and Diane Schwab. (Id. at ¶ 2). Plaintiffs Geraldine Schwab, Walter Schwab and Ellen Schwab are the respective trustees of the Walter L. Schwab Irrevocable Trust ("Schwab Trust"), the Walter Revocable Trust ("Walter Trust") and Ellen G. Schwab Revocable Trust ("Ellen Trust") and sue in their capacity as trustees. (Id. at ¶¶ 3-5). Finally, Plaintiffs Dominique Schmidt and Carol Schwab sue as individuals. (Id. at ¶¶ 6, 7). Schmidt served as business manager to Plaintiffs and was authorized to discuss investment opportunities, negotiate those opportunities and act on behalf of Plaintiffs. (Dkt. 80-1 at Ex. D, ¶¶ 4, 14).

II. Plaintiffs' Investments in Finance Factor

Finance Factor's business was to obtain loans from investors and then lend the money obtained to other borrowers at a higher interest rate than the rate Finance Factor paid to its lenders. (Dkt. 131 at ¶ 19). In June 2014, Mandell obtained a 50% ownership interest in Finance Factor from Field. (Id. at ¶ 16). Mandell is an attorney with previous experience managing private mutualfunds and private placements. (Id. at ¶ 3). When Field sold his interest in Finance Factor to Mandell, he also ceased any duties related to the management and direction of Finance Factor. (Id. at ¶ 18). However, as discussed further below, soon after he sold his interest and beginning in July 2015, Field's company KTG LLC became a customer of Finance Factor. (Id.). Field owns 100% of KTG Inc. which owns 100% of and is the sole member of KTG LLC. (Id. at ¶ 43).

Mandell was the manager of Finance Factor from June 2014 to late 2016. (Dkt. 124 at ¶ 18). Thomas Jiaris was another managing member of Finance Factor during this time. (Id. at ¶ 9; Dkt. 131 at ¶ 17). Mandell's duties as manager included managing the company's finances, policies and business practices, as well as being an authorized agent responsible for conducting its business. (Dkt. 124 at ¶ 18.). Mandell had specific authority to issue promissory notes to Plaintiffs on behalf of the company. (Id. at ¶ 20).

Part of Mandell's job was to solicit money from investors. (Dkt. 131 at ¶ 20). Because of KTG LLC's customer relationship with Finance Factor, Field knew at least partially of Mandell's efforts to raise money for Finance Factor. (Id. at ¶ 45). Mandell drafted a document entitled "Finance Factor Investment Opportunity Executive Summary" ("Executive Summary") to use for soliciting investments. (Id. at ¶ 22). Field had at least some input in the Executive Summary, including by providing comments on at least one draft of the document. (Id. at ¶ 22; see also Dkt. 129-1 at ¶ 3). The Executive Summary stated that Finance Factor was formed to provide "secured financing" to "emerging high growth companies, with an emphasis in the technology sector." (Dkt. 131 at ¶ 23). The Executive Summary also made the following specific representations:

Finance Factor provides purchase order financing, account receivable financing, lines of credit and factoring services.

The managers of Finance Factor conduct a thorough due diligence on all prospective borrowers.

In many situations, the borrowers and their business are well known to Finance Factor. Many of our borrowers are repeat customers. Regardless of their familiarity, the value of the collateral pledged, whether a traditional hard asset (such as land, building or inventory) or a nontraditional asset (such as a patent, intellectual property, purchase order or accounts receivable) is carefully analyzed and confirmed before each loan is made.

Determination of a loan worthy borrower also takes into consideration the credit-worthiness of the borrower's customer(s).

[For lines of credit], [t]he line is secured by a first security interest in the borrower's assets (e.g., accounts, equipment, fixtures, chattel paper, patents, trademarks, copyrights, contract rights, documents, instruments, deposit accounts, cash and cash equivalents).

(Id. at ¶ 24).

On June 25, 2014, Mandell emailed Schmidt stating that he was writing on behalf of Finance Factor concerning a potential investment in Finance Factor and attached the Executive Summary with the intention that Schmidt and ...