Janssen v. Bri Holding, LLC

• Decision Date: 15 May 2017
• Docket Number: Case No. 16-cv-10098
• Parties: ASH JANSSEN, Plaintiff, v. BRI HOLDING, LLC, Defendant.
• Court: U.S. District Court — Northern District of Illinois

ASH JANSSEN, Plaintiff, v. BRI HOLDING, LLC, Defendant.

Case No. 16-cv-10098

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

May 15, 2017

Judge John Robert Blakey

MEMORANDUM OPINION AND ORDER

Plaintiff Ash Janssen ("Plaintiff"), a Colorado resident, brings this diversity action against Defendant BRI Holding, LLC ("Defendant"), an Illinois corporation, to collect amounts purportedly owed under a written Promissory Note (the "Note"). Compl. [1]. On January 27, 2017, Plaintiff moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). Pl.'s Mot. J. Plead. [18]. For the reasons explained below, Plaintiff's motion is granted.

I. Background

Defendant executed the Note on or about September 30, 2014. Compl. [1] ¶ 8; Ans. [15] ¶ 8.¹ Under its terms, Defendant "unconditionally promises to pay" to the order of Plaintiff a principal amount of $2,500,000, plus accrued and unpaid interest at a rate of twenty percent per annum.² Compl. [1] Ex. A at 1.

Beginning in 2015, the Note required Defendant to make payments of accrued and unpaid interest on January 15, April 15, July 15, and October 15 of each calendar year. Id. The entire outstanding principal amount was due on or before the Note's maturity date, which is five years after the acceptance of the Note. Id. Failure to make a timely payment of principal or interest constitutes an "Event of Default," which allows Plaintiff to declare "the entire unpaid principal amount of [the] Note together with accrued interest" immediately due and payable. Id. at 2. Moreover, during the continuance of an Event of Default, the Note's interest rate increases to twenty-five percent per annum. Id. at 1.

Defendant failed to make the required interest payments on January 15, 2015; April 15, 2015; June 15, 2015; October 15, 2015; January 15, 2016; April 15, 2016; and July 15, 2016. Compl. [1] ¶ 13; Ans. [15] ¶ 13. On July 18, 2016, Plaintiff sent Defendant a demand letter notifying it of its failure to pay and declaring the entire outstanding balance immediately due and payable. Compl. [1] ¶ 15; Ans. [15] ¶ 15. Despite the demand letter, Defendant still failed to make its required interest payment on October 15, 2016. Compl. [1] ¶ 15, 17; Ans. [15] ¶ 15, 17. On October 27, 2016, Plaintiff filed suit in this Court. Compl. [1].

In its Answer to Plaintiff's Complaint, Defendant admits the material facts discussed above, but denies that Plaintiff is entitled to any payments of principal or interest. Ans. [15] 1. Rather, Defendant claims that the Note at issue was, in fact, "part of a larger transaction" in which Defendant acquired a seventy percent interest in Plaintiff's company, AAR Parent, LLC ("AAR"). Id. Defendant alleges that as part of this larger transaction, the parties "contemplated" that Plaintiff would be paid back on the Note "solely from distributions from [Defendant's] equity interest in AAR." Id. Defendant avers that its interest in AAR—which constitutes its only asset—has since become worthless, leaving Defendant unable to repay the Note. Id. Defendant believes that Plaintiff assumed the risk of such default as part of the overall transaction. Id.

II. Legal Standard

Rule 12(c) permits a party to move for judgment solely upon the pleadings. Fed. R. Civ. P. 12(c); Moss v. Martin, 473 F.3d 694, 698 (7th Cir. 2007). A motion for judgment on the pleadings "is designed to provide a means of disposing of cases when the material facts are not in dispute and a judgment on the merits can be achieved by focusing on the content of the pleadings and any facts of which the court may take judicial notice." Archer Daniels Midland Co. v. Burlington Ins. Co. Grp., No. 10-cv-1533, 2011 WL 1196894, at *2 (N.D. Ill. Mar. 29, 2011) (quoting Cincinnati Ins. Co v. Contemporary Distrib., Inc., 2010 No. 09-cv-2250, 2010 WL 338943, at *2 (N.D. Ill. Jan. 26, 2010)). The pleadings consist of the complaint, the answer, and any written instruments attached as exhibits (here, the Note). Hous. Auth. Risk Retention Grp., Inc. v. Chicago Hous. Auth., 378 F.3d 596, 600 (7th Cir. 2004).

Generally, the Court reviews Rule 12(c) motions under the same standard as a motion to dismiss under Rule 12(b). N. Indiana Gun & Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 452 (7th Cir. 1998). However, where, as here, a party seeks to use a Rule 12(c) motion "to dispose of the case on the basis of the underlying substantive merits," the appropriate standard "is that applicable to summary judgment, except that the court may consider only the contents of the pleadings." Alexander v. City of Chi., 994 F.2d 333, 336 (7th Cir. 1993); United States Liab. Ins. Co. v. Sigmatek, Inc., No. 14-cv-1747, 2015 WL 801504, at *4 (N.D. Ill. Feb. 20, 2015). In these cases, the Court must view the facts and all reasonable inferences drawn from those facts in the light most favorable to the non-moving party. P-Americas, LLC v. Cent. States Se. & Sw. Area Pension Fund, No. 13-cv-8808, 2014 WL 3858396, at *3 (N.D. Ill. Aug. 5, 2014). A motion will not be granted unless "no genuine issues of material fact remain to be resolved" and the moving party "is entitled to judgment as a matter of law." Alexander, 994 F.2d at 336.

III. Discussion

A. Article 3 Of The Illinois Commercial Code Applies

Before reaching the merits of the parties' claims, the Court must first determine the applicable law. The parties agree that Illinois law governs, an understanding buttressed by the language of the Note itself. See Compl. [1] Ex. A at 5 ("THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES OF ANY JURISDICTION.").

In Illinois, negotiable instruments are governed by Article 3 of the Illinois Commercial Code (the "Code"), 810 ILCS § 5/1-101 et seq. The Code defines a "negotiable instrument" as, inter alia, "an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order." Id. § 5/3-104. A promise or order is considered unconditional unless it states: (1) "an express condition to payment"; (2) "that the promise or order is subject to or governed by another writing"; or (3) "that rights or obligations with respect to the promise or order are stated in another writing." Id. § 5/3-106. A promise or order is not made conditional "because payment is limited to resort to a particular fund or source." Id.

In addition to being unconditional, a negotiable instrument also:

(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) is payable on demand or at a definite time; and

(3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of any obligor.

Id. § 5/3-104.

Under the Note at issue here, Defendant "unconditionally promise[d] to pay" a principal amount of $2,500,000 (plus accrued and unpaid interest). Compl. [1] Ex. A at 1 (emphasis added). Although Defendant alleges that Plaintiff purportedly agreed to be paid solely from distributions from Defendant's equity interest in AAR, this alone does not make the promise or order to pay conditional. See 810 ILCS § 5/3-106. Moreover, the Note is payable "to the order" of Plaintiff on or before the Note's maturity date, which is five years after the acceptance of the Note. Compl. [1] Ex. A at 1. Aside from the payment of money, the Note does not include any other undertaking or instruction to do any act. The Note, therefore, constitutes a negotiable instrument under Article 3.³ See In re W-S Assocs., No. 94-B-21227, 1996 WL 691347, at *7 (Bankr. N.D. Ill. Nov. 26, 1996); Cole v. Davis, 63 N.E.3d 946, 958 (Ill. App. Ct. 2016).

B. Plaintiff Is Entitled To Enforcement Of The Note Unless Defendant Can Establish A Defense Or Claim In Recoupment

Article 3 provides:

(a) In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings. If the validity of a signature is denied in the pleadings, the burden of establishing validity is on the person claiming validity, but the signature is presumed to be authentic and authorized unless the action is to enforce the liability of the purported signer and the signer is dead or incompetent at the time of trial of the issue of validity of the signature. If an action to enforce the instrument is brought against a person as the undisclosed principal of a person who signed the instrument as a party to the instrument, the plaintiff has the burden of establishing that the defendant is liable on the instrument as a represented person pursuant to Section 3-402(a).

(b) If the validity of signatures is admitted or proved and there is compliance with subsection (a), a plaintiff producing the instrument is entitled to payment if the plaintiff proves entitlement to enforce the instrument under Section 3-301, unless the defendant proves a defense or claim in recoupment. If a defense or claim in recoupment is proved, the right to payment of the plaintiff is subject to the defense or claim, except to the extent the plaintiff proves that the plaintiff has rights of a holder in due course which are not subject to the defense or claim.

810 ILCS § 5/3-308 (emphasis added). Section 3-301 states:

"Person entitled to enforce" an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument

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