Equity Trust Co. Custodian v. Windwrap, LLC, Case No. 19-cv-03048

• Decision Date: 26 March 2020
• Docket Number: Case No. 19-cv-03048
• Citation: 449 F.Supp.3d 763
• Parties: EQUITY TRUST COMPANY CUSTODIAN F/B/O JEFFREY M. WAGNER I.R.A., Plaintiff, v. WINDWRAP, LLC, Defendant.
• Court: U.S. District Court — Northern District of Illinois

449 F.Supp.3d 763

EQUITY TRUST COMPANY CUSTODIAN F/B/O JEFFREY M. WAGNER I.R.A., Plaintiff,

v.WINDWRAP, LLC, Defendant.

Case No. 19-cv-03048

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

Signed March 26, 2020

Richard A. Saldinger, Alexander Isaac Ernst Passo, Latimer LeVay Fyock LLC, Chicago, IL, for Plaintiff.

Adrian M. Vuckovich, Christopher Robert Bargione, Kathryne R. Hayes, Collins Bargione & Vuckovich, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

Hon. Martha M. Pacold Plaintiff Equity Trust Company Custodian f/b/o Jeffrey M. Wagner I.R.A. filed this breach of contract and foreclosure action against Windwrap, LLC. Before the court are defendant's motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), plaintiff's motion for leave to file a sur-reply in response to the motion to dismiss, and plaintiff's motion for summary judgment. For the reasons set forth below, the court grants plaintiff's motion to file a sur-reply [33] and grants defendant's motion to dismiss [25], without prejudice to filing in the appropriate court. Because the case is dismissed for lack of subject matter jurisdiction, plaintiff's motion for summary judgment [6] is denied as moot.

I. Legal Standard

Federal courts are courts of limited jurisdiction. Northern Trust Co. v. Bunge Corp. , 899 F.2d 591, 593 (7th Cir. 1990). "The party invoking federal jurisdiction bears the burden of demonstrating its existence." Appert v. Morgan Stanley Dean Witter, Inc. , 673 F.3d 609, 617 (7th Cir. 2012).

A motion to dismiss under Rule 12(b)(1) challenges the court's subject matter jurisdiction. To determine whether subject matter jurisdiction exists, the court first considers the complaint, "accepting as true all well pleaded allegations and the inferences that may be reasonably drawn from those allegations." CCC Info. Servs., Inc. v. Am. Salvage Pool Ass'n , 230 F.3d 342, 346 (7th Cir. 2000). "When evidence pertinent to subject matter jurisdiction has been submitted, the court may look beyond the jurisdictional allegations of the complaint to determine whether subject matter jurisdiction exists." Id.

Here, plaintiff filed, simultaneously with the complaint, a motion for summary judgment. (Dkt. 6.)¹ In support of the motion for summary judgment, plaintiff filed a memorandum (Dkt. 7) and the affidavit of Jeffrey M. Wagner (Dkt. 9) with attached Exhibits A-Z (Dkts. 9-1 through 9-27). Besides the complaint, the court considers these documents to the extent that they bear on subject matter jurisdiction.

II. Background

Jeffrey M. Wagner met Peter Carbonaro in 1992, when Carbonaro's employer hired Wagner's law firm. (Wagner Aff., Dkt. 9 ¶ 2.) Wagner later hired Carbonaro's company to build a family home. (Id. ¶ 3.) Carbonaro next began developing a home construction product aimed at better securing roofs to houses, and Wagner provided financial and legal assistance for its development, beginning in 2001 and continuing periodically. (Id. ¶¶ 4–8.)

In 2013, Carbonaro's product was ready for final testing and engineering. (Id. ¶ 9.) Wagner and Carbonaro discussed funding the final product development through a self-directed Individual Retirement Account (IRA). (Id. ¶ 10.) Carbonaro identified Equity Trust Company as a potential custodian for the self-directed IRA, and, on April 4, 2013, Wagner opened a self-directed IRA with Equity Trust Company. (Id. ¶¶ 12–15.) Around the same time, Carbonaro formed Windwrap, Inc. to own the product and bring it to market. (Id. ¶¶ 10–11.)

On April 5, 2013, Windwrap, Inc. executed a Promissory Note in favor of "Equity Trust Company Custodian FBO Jeffrey Wagner IRA," in the amount of $380,000.00; Windwrap, Inc. and "Equity Trust Company Custodian FBO Jeffrey Wagner IRA" also entered into a Security Agreement that secured the Promissory Note by a security interest in Windwrap, Inc.'s assets. (Complaint, Dkt. 1, ¶¶ 6–8; Promissory Note and Security Agreement, Dkt. 1-1, Exs. A–B.) Consistent with these documents, Wagner directed Equity Trust Company to send $380,000 to Windwrap, Inc., from Wagner's self-directed IRA, by filling out and signing a "Promissory Note Direction of Investment" form provided by Equity Trust Company. (Dkt. 9-11.)

Carbonaro, Windwrap, Inc.'s President, signed the Promissory Note and Security Agreement on behalf of Windwrap, Inc. (Dkt. 1-1 at 3, 7.) Wagner signed the Security Agreement on behalf of Equity Trust Company Custodian FBO Jeffrey Wagner IRA; Equity Trust Company appears to have subsequently added a stamp on the signature page indicating that the document had been "[p]rocessed" on April 22, 2013. (Id. at 7.) That same day, Equity Trust Company sent Wagner an auto-generated email confirmation that the $380,000 "[p]urchase request" had been processed. (Dkt. 9 ¶ 20 & Ex. K (Dkt. 9-12).)

Windwrap, LLC later succeeded Windwrap, Inc. as the borrower on the Promissory Note. (Dkt. 1 ¶¶ 13–14.) Windwrap has not repaid the principal or interest due on the loan. (Id. ¶ 15.)

Equity Trust Company Custodian f/b/o Jeffrey M. Wagner I.R.A. filed this lawsuit against Windwrap. The complaint contains two counts: breach of contract (alleging breach of the Promissory Note and Security Agreement) and foreclosure of security interest. (Dkt. 1 ¶¶ 5-27.) The relief sought includes judgment in favor of Equity Trust Company Custodian f/b/o Jeffrey M. Wagner I.R.A. and against Windwrap on both counts; damages, consisting of the $380,000.00 loan principal, interest totaling $304,000.00 as of April 5, 2019, plus $156.16 per day thereafter until the date of judgment, $3,030 paid to the U.S. Patent Office to maintain and/or reinstate Windwrap's patents, and attorneys' fees and costs; injunctive relief allowing an inspection of Windwrap's "books, records, and other Collateral that it pledged pursuant to the parties' Security Agreement"; and "a judgment of foreclosure on Equity Trust's security interest, including an Order declaring that Equity Trust is the owner of the Windwrap patents, trademarks and other intellectual property." (Id. at 8.)

III. Analysis

The complaint alleges that the court has diversity jurisdiction over this case. (Dkt. 1 ¶¶ 1–3.) Diversity jurisdiction exists when the matter in controversy exceeds $75,000, exclusive of interest and costs, and there is complete diversity between the parties. 28 U.S.C. § 1332(a)(1) ; see also Krueger v. Cartwright , 996 F.2d 928, 931 (7th Cir. 1993) (citing Strawbridge v. Curtiss , 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806) ). The complaint alleges that the amount in controversy exceeds the $380,000 loaned to Windwrap (Dkt. 1 ¶ 15); Windwrap does not dispute this. The only question, then, is whether the parties are citizens of different states. See § 1332(a)(1).

The defendant, Windwrap, LLC, is a citizen of Illinois (and possibly other states). "[T]he citizenship of an LLC for purposes of the diversity jurisdiction is the citizenship of its members." Cosgrove v. Bartolotta , 150 F.3d 729, 731 (7th Cir. 1998). Windwrap has three members: Peter Carbonaro, Maria Carbonaro, and Jeffrey Wagner. (Dkt. 1 ¶ 2.) The complaint alleges that all three are residents of Illinois. ( Id. ) "Citizenship depends not on residence but on domicile, which means the place where a person intends to live in the long run. It is possible to reside in one state while planning to return to a long-term residence in another state." RTP LLC v. ORIX Real Estate Capital, Inc. , 827 F.3d 689, 692 (7th Cir. 2016) ; see also Auto. Fin. Corp. v. Automax of N. Illinois, Inc. , 194 F. Supp. 2d 796, 797 (N.D. Ill. 2002) (for purposes of diversity jurisdiction, an individual's citizenship, rather than residence, "is the relevant fact"). While the parties have not identified the citizenship of Peter Carbonaro or Maria Carbonaro, in the briefing on the motion to dismiss, plaintiff asserts, and Windwrap does not dispute, that Jeffrey Wagner is a citizen of Illinois. (See Dkt. 30 at 5; Dkt. 31 at 10.) Thus, Windwrap is a citizen of at least Illinois, as well as Peter Carbonaro's and Maria Carbonaro's state(s) of citizenship.

The parties dispute the citizenship of the plaintiff, Equity Trust Company Custodian f/b/o Jeffrey M. Wagner I.R.A. The plaintiff contends that its citizenship is that of the entity Equity Trust Company, that Equity Trust Company is chartered under the laws of South Dakota and has its principal place of business in Ohio, and that therefore the plaintiff is not an Illinois citizen. (Dkt. 30 at 3 & n.1.)² Windwrap contends that Wagner, not Equity Trust Company, is the real party in interest for diversity jurisdiction purposes, and Wagner, like Windwrap, is a citizen of Illinois. (Dkt. 27 at 5–7.)

On its face, the complaint identifies the plaintiff as "Equity Trust Company Custodian f/b/o Jeffrey M. Wagner I.R.A." On its face, this name appears to mean Equity Trust Company, suing in its capacity as the custodian of the Wagner self-directed IRA, for the benefit of the Wagner self-directed IRA. However, the court can review documents beyond the complaint that address the relationship among Equity Trust Company, Wagner's self-directed IRA, and Wagner and thus relate to subject matter jurisdiction. Before reviewing the record, the court turns to the applicable legal principles.

The Seventh Circuit explained in CCC Info. Servs., Inc. v. Am. Salvage Pool Ass'n , 230 F.3d 342 (7th Cir. 2000) :

Ordinarily, we look only to the citizenship of the named parties and not to the citizenship of the persons being represented by a named party in order to determine whether complete diversity exists....This is the general rule for corporations as well as natural persons. See 28 U.S.C. § 1332(c)(1). With certain exceptions that are not relevant here, that section provides that a corporation is deemed a citizen of the State in which it was incorporated and of the State where it has its principal place of business.

Id. at 346. Here, based on plaintiff's filings, Equity Trust Company appears to be...