Hepp et al v. Ultra Green Energy Services LLC
Filing
144
MEMORANDUM Opinion and Order: For the foregoing reasons, the Court denies Ultra Green's motion to dismiss Count III of Hepp's second amended complaint, 136 . Signed by the Honorable Thomas M. Durkin on 8/4/2015:Mailed notice(srn, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CURT HEPP,
PLAINTIFF,
v.
ULTRA GREEN ENERGY SERVICES, LLC AND
M1 ENERGY RISK MANAGEMENT, LLC,
DEFENDANTS.
)
)
)
)
)
)
)
)
)
)
No. 13 C 4692
Judge Thomas M. Durkin
MEMORANDUM OPINION AND ORDER
On April 28, 2015, the Court denied plaintiff Curt Hepp’s motion for
summary judgment on its claim that defendant Ultra Green Energy Services, LLC
(“Ultra Green”) breached its agreement to guaranty co-defendant M1 Energy Risk
Management, LLC’s (“M1”) obligations under a secured note. See R. 127 (Hepp v.
Ultra Green Energy Services, LLC, No. 13 C 4692, 2015 WL 1952685 (N.D. Ill. Apr.
28, 2015)). Hepp then amended his complaint to assert, in the alternative, a claim
against Ultra Green for breach of a prior biodiesel financial swap agreement (the
“Swap Agreement”) between Hepp and Ultra Green. R. 132 ¶¶ 49-53 (Count III).
Ultra Green has moved to dismiss Count III, arguing that it does not state a claim
for relief because the secured note superseded the Swap Agreement. For the
following reasons, the Court denies Ultra Green’s motion to dismiss.
BACKGROUND
The Court will assume that the reader is familiar with its April 28, 2015
memorandum opinion. Nevertheless, a brief overview of the relevant facts will be
1
helpful. Under the terms of the Swap Agreement, Ultra Green agreed to pay Hepp
$375,000 if the United States government adopted a biodiesel blending credit by
March 31, 2011; Hepp, in turn, agreed to pay Ultra Green $125,000 if the
government did not approve the credit by that date. R. 132 ¶ 9. Pierce executed the
Swap Agreement on Ultra Green’s behalf as its Managing Member. Id. As the Court
noted in its prior opinion, see Hepp, 2015 WL 1952685, at *5, Ultra Green appears
to concede that Pierce had authority under the company’s Operating Agreement to
execute the Swap Agreement on the company’s behalf.
As security for his contingent liability under the Swap Agreement, Hepp
agreed to pay $125,000 to M1, a company that Pierce owned and that was “related
to Ultra Green.” R. 132 ¶ 10; see also Hepp, 2015 WL 1952685, at *1 (M1 had a 5%
ownership interest in Ultra Green at that time). In exchange for this payment, M1
(as “Borrower”) promised to pay Hepp (as “Lender”) $125,000 on May 31, 2011 (the
date on which Hepp would be required to pay Ultra Green under the Swap
Agreement if the government did not adopt the fuel credit before the deadline). R.
132 ¶12. The parties memorialized their agreement in a promissory note dated
October 8, 2010 (the “First Secured Note”). Id. Ultra Green “unconditionally
guaranteed” M1’s obligations under the Note, id. ¶ 13, and granted Hepp a security
interest in “all assets and receivables of” Ultra Green. R. 132-2 at 2. Pierce signed
the note on behalf of M1 (as President) and Ultra Green (as Managing Member). Id.
at 3.
2
On or about December 17, 2010, President Obama signed H.R. 485, the Tax
Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
(P.L. No. 111-312). R. 132 ¶ 14. The Act extended and reinstated several alternative
fuel tax credits through December 31, 2011, including the biodiesel blending credit.
Id. So, under the terms of the Swap Agreement, Ultra Green became obligated to
pay Hepp $375,000 by February 15, 2011 (60 days after the Act became law). Id. 1
On the day that Ultra Green’s $375,000 payment was due, the parties
“replaced” the First Secured Note with a new note in the same principal amount
($125,000), “payable 30 calendar days following demand for payment” (the “Second
Secured Note”). Id. ¶¶ 15-18. The Second Secured Note imposed 18% annual
interest payable monthly. Id. ¶ 17. Otherwise, the terms of the First and Second
Secured Notes—including Ultra Green’s guaranty and security agreement—were
the same. Id. ¶ 18. Pierce again signed the note on behalf of M1 and Ultra Green (as
Managing Member). Id. ¶ 21.
A week after Pierce executed the Second Secured Note, on February 22, 2011,
Ultra Green paid Hepp $250,000. Id. ¶ 22. On that same date, the parties replaced
the Second Secured Note with a third note (the “Third Secured Note”). Id. ¶ 23. The
Third Secured Note contained largely the same terms as the Second Secured Note.
Hepp re-alleges in his second amended complaint that the due date was March 31,
2015. R. 132 ¶ 14. The Court has held, however, that “Ultra Green’s liability was
triggered if the government reinstated the tax credit before [March 31, 2015], but
payment was due 60 days after reinstatement.” Hepp, 2015 WL 1952685, at *2 n.5
(citing R. 109-1 at 7 (“Seller shall pay to Buyer the amount of Seller’s obligation on
or before 60 days following the reinstatement of the US Biodiesel Blending Credit
retroactively for all of calendar 2010, as long as the blending credit is enacted by or
before March 31, 2011.”)).
1
3
Id. The principal amount of the Third Secured Note, however, was higher: $245,398
(“the present value of $250,000 as of March 31, 2011, using an 18% interest rate”).
Id. Hepp alleges that the $250,000 figure represented the outstanding balance
under the Swap Agreement ($125,000, after Ultra Green’s $250,000 payment on
February 22, 2011), plus the face amount of the Second Secured Note ($125,000). Id.
Ultra Green, acting through Pierce, again agreed to unconditionally guaranty M1’s
performance, and granted Hepp a security interest in all of its “assets and
receivables. Id. ¶¶ 25, 28.
On or about June 1, 2011, M1 paid $70,398 to Hepp, its first and only
principal payment. Id. ¶ 29. Hepp demanded payment of the full principal amount
in March 2012. Id. ¶ 31. M1 did not (and has not) paid Hepp and has stopped
making interest payments. Id. ¶¶ 30-31. Ultra Green has refused to honor the
guarantee. Id. ¶ 32.
LEGAL STANDARD
A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g.,
Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th
Cir. 2009). A complaint must provide “a short and plain statement of the claim
showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to
provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels
4
and conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.’”
Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In
applying this standard, the Court accepts all well-pleaded facts as true and draws
all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.
ANALYSIS
In its opinion denying Hepp’s motion for summary judgment, the Court held
that there were genuine disputes of material fact about whether Pierce exceeded his
authority under Ultra Green’s Operating Agreement when he executed the Third
Secured Note on the company’s behalf. Hepp, 2015 WL 1952685, at *6. If the Court
finds that Pierce did exceed his authority, Hepp claims that Ultra Green is still
liable for breach of the Swap Agreement:
In the event this Court finds the Ultra Green guarantee of the [Third
Secured Note] to be invalid, Plaintiff asserts this claim for breach of
contract against Ultra Green, and seeks the $125,000 due and owing
on the trade, plus pre-judgment interest since February 15, 2011.
R. 132 ¶ 53.
Ultra Green argues that the Third Secured Note extinguished the Swap
Agreement, citing the “merger” doctrine:
5
The doctrine of merger provides that where a subsequent contract is
executed which relates to the same subject matter and embraces the
same terms as a previous contract, then actions by the parties, based
upon a contract, must be based upon the provisions of the subsequent
contract. The first contract is said to have merged into the subsequent
contract covering the same matters.
First United Leasing Corp. v. Campagnie Nationale Air Fr., No. 95 C 2743, 1995 WL
560918, at *4 (N.D. Ill. Sept. 18, 1995) (citing Kraft v. No. 2 Galesburg Crown Fin.
Corp., 420 N.E.2d 865, 870 (Ill. Ct. App. 3d Dist. 1981)); see also R. 136 at 6. Ultra
Green also argues that the Third Secured Note “modified” the Swap Agreement, so
that any lawsuit to enforce the parties’ agreement “must be brought on the modified
agreement and not the original agreement.” Schwinder v. Austin Bank of Chi., 809
N.E.2d 180, 189 (Ill. Ct. App. 1st Dist. 2004); see also R. 136 at 6-7.
The cases Ultra Green cites do not address how the merger doctrine applies
when one of the parties to the later contract contends that it is invalid (in whole or
in part). It is apparent that Hepp was unwilling to accept M1’s promise to pay him
without Ultra Green’s guaranty, further secured by a security interest in Ultra
Green’s assets. Under the circumstances, the Court questions whether the Third
Secured Note, stripped of Ultra Green’s guaranty, would “embrace[] the same
terms” as the Swap Agreement. See Alton Banking & Trust Co. v. Schweitzer, 460
N.E.2d 105, 108 (Ill. Ct. App. 5th Dist. 1983) (“Even where merger might be
expected to occur, it will fail if the second contract does not satisfy all the terms of
the original agreement.”); cf. Kraft, 420 N.E.2d at 867 (court stated that it would
have “no difficulty” concluding that a note was merged into a subsequent note
containing identical terms except for the word “estimated”). Indeed, it would be a
6
strange result if Ultra Green could, through the ultra vires act of its Managing
Member, avoid its obligations under the Swap Agreement, a contract that he
apparently had authority to execute on the company’s behalf.
Besides being underdeveloped, Ultra Green’s motion is also premature. The
Swap Agreement’s enforceability is relevant only if the Court decides after trial that
Pierce lacked authority to execute the Third Secured Note on Ultra Green’s behalf.
At that point, the Court will have a fully developed factual record, which may shed
light on the circumstances surrounding these transactions and on the parties’
intent.
CONCLUSION
For the foregoing reasons, the Court denies Ultra Green’s motion to dismiss
Count III of Hepp’s second amended complaint, R. 136.
ENTERED:
Honorable Thomas M. Durkin
United States District Judge
Dated: August 4, 2015
7
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?