Powell Stern Capital, Inc. v. Plastics, 18 C 7395
| Decision Date | 16 September 2019 |
| Docket Number | 18 C 7395 |
| Parties | POWELL STERN CAPITAL, INC., Plaintiff, v. STANDLEY PLASTICS, INC. Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION
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.
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 tocancel 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, orenter 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 [Powell] the terms thereof (including, without limitation, the type of consideration offered and the identity of the third party). [Standley] shall deal exclusively with [Powell] with respect to any possible Acquisition Transaction and [Powell] shall have the right to match the terms of any proposed transactions in lieu of such parties.
Section 5 states:
Expenses. In the event that [Standley] abandons and/or terminates this Letter agreement with or without cause prior to execution of the Purchase Agreement as set forth herein, [Standley] will pay a break-up fee of one million Dollars ($1,000,000) to [Powell] ... [Powell] and [Standley] shall each pay its own fees and expenses ... with respect to the negotiations of the Purchase Agreement ....
Shortly thereafter, Powell alleges that Standley actively solicited offers from other investors. In April of 2018, Bombola allegedly informed Powell that Standley was in negotiations with an investor that was willing to put $3 million to $5 million into Standley. However, Standley failed to disclose the identity of this capital source nor provided Powell with any details so that it could make an informed decision on the right to match such offer. Powell subsequently learned that "Shift Capital" provided capital to and received equity from Standley. Powell also alleges that Standley used Powell asa "Stalking Horse" bidder with other potential investors to increase its alleged purchase value, and that Standley failed to timely deliver the requested financial information.
On June 4, 2018, Powell sent a letter to Standley taking the position that Standley breached the LOI. On September 10, 2018, Standley sent a letter to Powell terminating the LOI and broker fee arrangement. About one month later, Powell demanded that Standley pay the $1 million break-up fee. In response, Standley told Powell that the "LOI/Acquisition Letter is still viable."
On November 7, 2018, Powell filed its two-count complaint against Standley. Count I alleges a breach of contract claim against Standley under the LOI, and Count II alleges a breach of contract claim under the Consulting Agreement. On January 7, 2019, Standley filed the instant motion, seeking dismissal of Counts I and II under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted.
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) "tests the sufficiency of the complaint, not the merits of the case." McReynolds v. Merrill Lynch & Co., 694 F.3d 873, 878 (7th Cir. 2012). The allegations in the complaint must set forth a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Plaintiffs need not provide detailed factual allegations, but they must provide enough factual support to raise their right to relief above a speculative level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).
A claim must be facially plausible, meaning that the pleadings must "allow...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). The claim must be described "in sufficient detail to give the defendant 'fair notice of what the...claim is and the grounds upon which it rests.'" E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at 555). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements," are insufficient to withstand a 12(b)(6) motion to dismiss. Iqbal, 556 U.S. at 678.
I. Breach of Contract Claims
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