First Midwest Bank v. RMG Sports Grp.
| Decision Date | 16 September 2021 |
| Docket Number | 18 CV 05872 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | FIRST MIDWEST BANK, Plaintiff, v. RMG SPORTS GROUP LLC & ROBERT M. GARBER, Defendants. |
First Midwest Bank (“First Midwest”) filed this diversity action against RMG Sports Group LLC (“RMG”) and Robert M. Garber (“Garber”) seeking, in part, to void an alleged fraudulent transfer of property under the Illinois Uniform Fraudulent Transfer Act (“IUFTA”), 740 ILCS § 160/1 et seq. (Dckt. #70.) Defendants have moved to dismiss Counts V, VI, and VII of the Second Amended Complaint (“SAC”). (Dckt. #71.) For the reasons set forth below, defendants' motion to dismiss is granted in part and denied with prejudice in part.
The facts alleged by First Midwest in the SAC are as follows Garber is the sole member of RMG, a limited liability company registered in Florida. (Dckt. #70 at 1.) Through RMG, Garber acts as a sports agent for professional baseball players. (Id.) On September 5, 2016, RMG and First Midwest entered into a business loan agreement, pursuant to which First Midwest would extend financing and make loans in the aggregate principal amount of up to $1, 200, 000.00 to RMG. (Id. at 3.) The loans were secured by the assets of RMG under a security agreement (the “Security Agreement”). (Id.) Under the Security Agreement, First Midwest took a security interest in, among other things, RMG's inventory, money, other rights to payment and performance, and general intangibles. (Id. at 3-4.) To secure the loan, Garber, in his individual capacity, executed a commercial guaranty in favor of First Midwest, which includes all obligations of RMG Sports to First Midwest. (Id. at 4.)
In 2017, Garber and First Midwest agreed to extend the maturity of the note obligations from September 5, 2017 to September 5, 2018. (Id. at 5.) The extension was granted in reliance on RMG's expected income for 2017 and 2018, as provided by Garber. (Id.) In November 2017, Garber informed First Midwest that the expected income he had provided earlier in the year remained accurate. He failed to disclose, however, that his largest client, J.D. Martinez had recently signed with another agency. (Id. at 6.)
On November 17, 2017, during the same month in which published reports showed Martinez had signed with another agency, Bash Baseball - a limited liability company - was formed in Florida through filings with the Florida Secretary of State. (Id. at 11.) On the day Bash Baseball was formed RMG made a payment of $125.00 to Florida's Secretary of State. (Id.) Bash Baseball's sole member is Michael Garber, a relative of Garber's. (Id. at 19.) One month after its formation, on December 18, 2017 Bash Baseball received a $300, 000.00 deposit from Michael Fiers (“Fiers”), a professional baseball player. (Id. at 11.) The transferred money was Fiers's agent fee for the 2018 baseball season. (Id.) First Midwest alleges that Fiers was a client of RMG “at all relevant times” and that either RMG or Garber “transferred or caused to be transferred” the $300, 000.00 payment from Fiers to Bash Baseball. (Id.)
On February 5, 2018, less than two months after the Fiers payment, $200, 000.00 was deposited into Garber's personal checking account. (Id. at 12.) Garber then made two payments totaling $187, 800.00 to Kellermann Varela PL (“Kellermann”), a law firm. This money was used by Kellermann to purchase a Miami Beach condo for Garber. (Id.) Garber subsequently sold the condo in April 2020. (Id.) On April 9, 2018 - at least six months after Martinez had signed with another agent - Garber informed First Midwest that he (1) no longer represented Martinez; (2) was unsure how he would be able to repay his financial obligations to First Midwest under the 2017 loan agreement; and (3) was contemplating filing for bankruptcy. (Id. at 7.) As of August 6, 2018, RMG is alleged to owe First Midwest $1, 181, 669.04 in principal, $29, 427.76 in interest, and $4, 118.40 in legal fees under the 2017 agreement. (Id. at 4.) First Midwest alleges that it has suffered damages in excess of $1, 216, 455.76. (Id. at 17.)
II. LEGAL STANDARD
To survive a Rule 12(b)(6) motion, a complaint must “state a claim to relief that is plausible on its face.” Bell. Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible when the plaintiff “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “While the required level of specificity ‘is not easily quantified,' a plaintiff must allege ‘enough details about the subject-matter of the case to present a story that holds together.'” Bilek v. Fed. Ins. Co., et al., 8 F.4th 581, 586 (7th Cir. 2021), quoting McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011). Pleading only “labels and conclusions” or only “a formulaic recitation of the elements of a cause of action” will not suffice, nor will pleading facts that are “merely consistent” with a defendant's liability. Iqbal, 556 U.S. at 678, quoting Twombly, 550 U.S. at 557. If a complaint fails to meet this standard, it may be dismissed for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6).
Fraud claims are additionally subject to Rule 9(b)'s heightened pleading standard, under which a plaintiff must state with particularity the circumstances constituting fraud. Fed.R.Civ.P. 9(b); B.E.L.T., Inc. v. Wachovia Corp., 403 F.3d 474, 478 (7th Cir. 2005). “A plaintiff ordinarily must describe the ‘who, what, when, where, and how' of the fraud - ‘the first paragraph of any newspaper story.'” United States ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770, 776 (7th Cir. 2016), quoting United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009). This applies to both actual and constructive fraudulent transfer claims. Gen. Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1079 (7th Cir. 1997). To plead fraudulent transfer with the necessary particularity, then, “the complaint must allege what (or how much) was transferred, when the transfer was made, how it was made, who made it, who received it, and under what circumstances.” In re Life Fund 5.1 LLC, No. 09 B 32672, 2010 WL 2650024, at *3 (Bankr. N.D.Ill. June 30, 2010).
In applying these principles, the Court construes “the complaint in the light most favorable to the plaintiff[], accepting as true all well-pleaded facts and drawing reasonable inferences in the plaintiff[']s favor.” Yeftich v. Navistar, Inc., 722 F.3d 911, 915 (7th Cir. 2013). However, the Court “need not accept as true statements of law or unsupported conclusory factual allegations.” Id.
III. ANALYSIS
On November 12, 2020 First Midwest filed the seven-count SAC against RMG and Garber. (Dckt. #70.) In Counts V, VI, and VII, First Midwest alleges that the $300, 000.00 payment from Fiers to Bash Baseball and the $187, 800.00 payment from Garber to Kellermann constituted fraudulent transfers under the IUFTA. First Midwest asks the Court to avoid the transfers at issue and enter a money judgment in First Midwest's favor in the amount of the allegedly fraudulent transfers. (Dckt. #70 at 19, 21, 23.) Defendants have moved to dismiss each of these counts. (Dckt. #71.)
The IUFTA “protects against two kinds of fraudulent transfers: transfers with an actual intent to defraud and transfers which the law considers fraudulent (i.e., constructive fraud or fraud in law).” Gen. Elec. Capital Corp., 128 F.3d at 1078. In Counts V and VI, First Midwest alleges that the $300, 000.00 deposit Michael Fiers made to Bash Baseball on December 18, 2017 constituted both types of prohibited transfers.
Count V, brought under Section 5(a)(1), is premised on an actual fraud theory. The IUFTA provides that a transfer may be avoided if the debtor made the transfer “with actual intent to hinder, delay, or defraud any creditor of the debtor.” 740 ILCS § 160/5(a)(1). Count VI is premised on a constructive fraud theory. Unlike with claims of actual fraud, a plaintiff pleading constructive fraud need not show intent. Rather, a transfer is constructively fraudulent if the debtor made the transfer “without receiving a reasonably equivalent value in exchange for the transfer” and “was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction.” 740 ILCS § 160/5(a)(2). A presumption of constructive fraud is established where “(1) the debtor made a voluntary transfer; (2) at the time of the transfer, the debtor had incurred obligations elsewhere; (3) the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer; and (4) after the transfer, the debtor failed to retain sufficient property to pay the indebtedness.” Gen. Elec. Capital Corp., 128 F.3d at 1079.
Defendants do not contest that First Midwest alleged sufficient facts showing RMG had the requisite intent to commit actual fraud, nor do they contest First Midwest's allegation that RMG received no consideration in exchange for the transfer of $300, 000.00. (Dckt. #70 at 21.)
While actual and constructive fraud have somewhat different elements, defendants' motion to dismiss Counts V and VI turn on resolution of the same two issues. First, defendants argue that First Midwest failed to adequately plead an actual or constructive fraud claim because the payment by Fiers to...
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