Romans v. Orange Pelican, LLC

Decision Date13 April 2023
Docket Number22 CV 4169
PartiesFRANK ROMANS, Plaintiff, v. ORANGE PELICAN, LLC, Defendant.
CourtU.S. District Court — Northern District of Illinois
Lindsay C. Jenkins Judge

On April 7, 2021, and May 25, 2021, Plaintiff Frank Romans loaned $2 million and $1.5 million, respectively, to Defendant Orange Pelican, LLC (Orange Pelican) a commercial enterprise owned and operated by Dr. Arvind Ahuja, its sole member. The terms of those loans were memorialized in two promissory notes. Each note required Defendant to repay the principal and accrued interest one year after execution. Defendant failed to do so, and Plaintiff commenced this breach-of-contract action to enforce the notes.[1]

Although Defendant does not dispute that it failed to satisfy the terms of both notes, it asserts three affirmative defenses two on the merits and one challenging jurisdiction. With respect to jurisdiction, Defendant argues that this Court lacks personal jurisdiction and, therefore, cannot enter judgment against it. On the merits, Defendant argues that its obligation to repay each note was discharged under the related doctrines of commercial impracticability and frustration of purpose.

Before the Court is Plaintiff's motion to strike each of those defenses under Federal Rule of Civil Procedure 12(f) as well as his motion for judgment on the pleadings under Rule 12(c). [Dkt. No. 34]. For the reasons that follow, Plaintiff's motion to strike is granted with respect to Defendant's personal jurisdiction and commercial impracticability defenses but is denied as to Defendant's frustration of purpose defense.[2]Defendant will no doubt struggle to mount such a defense, but- at this early juncture-the Court is not satisfied that it is foreclosed from trying to do so as a matter of law.

Plaintiff's failure to prevail on this issue disposes of his motion for judgment on the pleadings as well. Because the door remains open (however slightly) to a frustration of purpose defense, it is not ‘beyond doubt' that Defendant will fail to ‘prove facts sufficient to support‘ that defense, if given an opportunity to conduct discovery. Federated Mut. Ins. Co. v. Coyle Mech. Supply Inc., 983 F.3d 307, 313 (7th Cir. 2020) (quoting Scottsdale Ins. Co. v. Columbia Ins. Grp., Inc., 972 F.3d 915, 919 (7th Cir. 2020)). Accordingly, Plaintiff's motion for judgment on the pleadings is denied, and this case will proceed to discovery on Defendant's sole remaining defense.

I. Background

Because this case is before the Court on a motion for judgment on the pleadings, the scope of its review is limited to facts contained in those pleadings. N. Ind. Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir. 1998). The pleadings in this case consist of Plaintiff's complaint-including the promissory notes attached to the complaint as exhibits[3]-and Defendant's answer. [Dkt. Nos. 1, 31-1, 31-2, 33]. The Court will not consider any factual information adduced by either party outside of those documents. Were the Court to consider such evidence, Federal Rule of Civil Procedure 12(d) would require it to convert Plaintiff's motion into a motion for summary judgment, a step neither party has requested and one that the Court is not inclined to take.

So limited, the facts bearing on Plaintiff's motions are straightforward. On April 7, 2021, Plaintiff loaned Orange Pelican $2 million. [Dkt. No. 1, ¶ 10]. The terms of that loan were memorialized in a promissory note (“the April note”). [Id. at ¶ 11]; [Dkt. No. 31-1]. Pursuant to the April note, Orange Pelican agreed to pay back the principal-with interest-on April 7, 2022. [Dkt. No. 31-1, 1]. The loan bore interest “at the per annum rate equal to fifteen percent (15%), computed based on a year of 360 days and the actual number of days elapsed.” [Id.]. Interest was “due and payable on a quarterly basis, measured in three . . . month increments” from the execution date. [Id.].

Not quite two months later-on May 25, 2021-Plaintiff extended a second loan to Orange Pelican, this time for $1.5 million. [Dkt. No. 1, ¶ 20]. As in April, this loan was also memorialized in a promissory note (“the May note”). [Id. at ¶ 21]; [Dkt. No. 31-2]. The May note bore interest at a higher annual rate, twenty percent, payable in quarterly installments on the same terms as the April note. [Dkt. No. 312, 1]. The May note was set to mature on May 25, 2022, on which date Orange Pelican agreed to pay back the principal in full, along with any unpaid interest. [Id.].

Aside from these differences, the April and May notes are materially identical. Both provide that, in the event of default, all unpaid principal and accrued interest “shall be immediately due and payable.” [Dkt. No. 31-1, 1]; [Dkt. No. 31-2, 1]. Both define “Event of Default” to include, inter alia, (1) Orange Pelican's failure “to pay the Principal Amount within ten (10) business days of the Maturity Date”; (2) Orange Pelican's “initiat[ion] or defen[se of] any case, proceeding, or other action which seeks to have an order for relief entered, adjudicating” Orange Pelican “as bankrupt or insolvent,” i.e., a bankruptcy proceeding; (3) and Orange Pelican's “dissolving or liquidating.” [Id.]. Finally, each note includes a choice-of-law provision expressing the parties' intent that it “be construed in accordance with and governed by the laws of the State of Wisconsin.” [Id.].

According to Orange Pelican, these notes “were specifically executed for the investment purpose of purchasing and selling medical-grade imports.” [Dkt. No. 33, 6]. The plan was to repay the notes with revenue generated from the domestic sale of those imports. [Id.]. Although details are scarce, this “investment opportunity” allegedly foundered due to “unforeseeable manufacturing problems” and “possibly fraudulent business conditions” that “are the subject of a separate lawsuit ” [Id. at 5]. These roadblocks “prevent[ed] delivery of” the sought-after “medical imports to the United States.” [Id. at 6]. Without products to resell, Orange Pelican lacked the cash flow it thought it would have when the notes reached maturity. The pleadings do not speak to what other assets Orange Pelican might have had to repay the notes. Be that as it may, when each note matured, Orange Pelican failed to make payments on either note, let alone repay all outstanding principal and accrued interest as required by their terms. [Id. at ¶¶ 14, 24].

Plaintiff filed suit in this Court to recover the principal and accrued interest that remains unpaid on each note. [Dkt. No. 1]. Defendant moved to dismiss for lack of personal jurisdiction. [Dkt. No. 13]. After that motion was denied, Defendant answered the complaint and asserted three affirmative defenses. The first affirmative defense-lack of personal jurisdiction-was included solely for the sake of preservation. [Dkt. No. 33, 5]. The second and third-frustration of purpose and commercial impracticability-are both centered on the same basic theory: that the “unforeseeable manufacturing problems” and “possibly fraudulent business conditions” that prevented Orange Pelican from successfully importing medical supplies for resale discharged its obligation to repay Plaintiff under both notes. [Id. at 5-6].

II. Legal Standards
A. Motion to Strike Affirmative Defenses

Under Federal Rule of Civil Procedure 12(f), a court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Motions to strike affirmative defenses are disfavored, Williams v. Jader Fuel Co., Inc., 944 F.2d 1388, 1400 (7th Cir. 1991), and will be granted only when an affirmative defense is “insufficient on the face of the pleadings.” Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1294 (7th Cir. 1989). That being said, granting a motion to strike is appropriate where doing so will “remove unnecessary clutter from the case,” which can “serve to expedite” its adjudication. Id.; see also FED. R. CIV. P. 1 (emphasizing that the Federal Rules of Civil Procedure should be “employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding”).

Courts in this district have applied a three-prong test to determine whether an affirmative defense is “sufficient” on its face within the meaning of Rule 12(f). In order to survive a motion to strike, (1) the matter must be properly pleaded as an affirmative defense; (2) the matter must be adequately pleaded under the Requirements of Federal Rules of Civil Procedure 8 and 9; and (3) the matter must withstand a Rule 12(b)(6) challenge ....' Sarkis' Cafe, Inc. v. Sarks in the Park, LLC, 55 F.Supp.3d 1034, 1039 (N.D. Ill. 2014) (quoting Renalds v. S.R.G. Rest. Grp., 119 F.Supp.2d 800, 802-03 (N.D. Ill. 2000)); see also Connectors Realty Grp. Corp. v. State Farm Fire & Cas. Co., 2021 WL 1143513, at *3 (N.D. Ill. Mar. 25, 2021).

Although the Seventh Circuit has yet to expressly approve this framework, each prong follows from the basic fact that affirmative defenses are pleadings and- consequently-“subject to all pleading requirements of the Federal Rules of Civil Procedure.” Heller, 883 F.2d at 1294.

A defense that fails to satisfy any one of these requirements is “insufficient” under Rule 12(f) and therefore, may be stricken. Importantly, however, just as a plaintiff may seek leave to amend a deficient complaint, a defendant may seek leave to amend a stricken affirmative defense, provided it can rectify the defect identified by the court and an amendment is appropriate under Rule 15(a)(2). 6 Wright & Miller, Federal Practice and Procedure § 1475 (3d ed.). For this reason, it matters a great deal whether a motion to...

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