Hepp et al v. Ultra Green Energy Services LLC

Filing 61

MEMORANDUM Opinion and Order: Ultra Green's motion to dismiss Hepp's amended complaint, [54, 55], is denied. The parties are directed to appear at the previously-scheduled status hearing set for 6/4/2014 at 09:00 AM. Signed by the Honorable Thomas M. Durkin on 5/22/2014: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.

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No. 13 C 4692
Judge Thomas M. Durkin

MEMORANDUM OPINION AND ORDER
The Plaintiff, Curt Hepp, filed a two-count amended complaint against the
Defendants, Ultra Green Energy Services LLC (“Ultra Green”) and M1 Energy Risk
Management, LLC (“M1 Energy”) alleging a breach of contract claim in each count.
R. 53. Ultra Green has filed a third-party complaint against Cathy W. Pierce
(“Cathy”), Robert J. Pierce (“Robert”), and M1 Energy. R. 6. On April 4, 2014, Ultra
Green has filed a motion to dismiss Hepp’s amended complaint, contending that it
fails to state a claim under Federal Rule of Civil Procedure 12(b)(6), and in any
event, does not meet the $75,000 jurisdictional requirement of 28 U.S.C. § 1332. R.
54. For the reasons that follow, the motion is denied.
BACKGROUND
Hepp is a commodities trader who lives in Texas. R. 53 ¶ 2. Ultra Green is a
limited liability corporation engaged in the sale and distribution of biofuels. Id. ¶ 7.
From at least 2010 until sometime in 2013, Ultra Green was managed by Robert
and Cathy. Id. M1 Energy is also a limited liability corporation, but it provides

financing for biodiesel purchase and trading. Id. ¶ 8. Robert is the manager of M1
Energy. Id.
On October 5, 2010, Hepp and Ultra Green, with Robert acting as Ultra
Green’s agent, entered into a “biodiesel financial swap.” Id. ¶ 9; see R. 53-1. The
parties were essentially predicting what the United States government would do
regarding “biodiesel blending credit.” R. 53 ¶ 9. If the government adopted the
credit by March 31, 2011, Ultra Green would pay Hepp $375,000; if it did not, Hepp
would pay Ultra Green $125,000. Id. Ultra Green wanted security in the event
Hepp was ultimately required to pay Ultra Green on the biodiesel financial swap.
Id. ¶ 10. The parties discussed various alternatives but eventually agreed that
Hepp would provide $125,000 cash in exchange for a promissory note that included
an 18% interest rate. Id. Ultra Green wanted to provide financing for M1 Energy,
its affiliate, so the parties agreed that Hepp would provide the money to M1 Energy
and that Ultra Green would guarantee M1 Energy’s payment of the note and any
outstanding amounts if M1 Energy defaulted. Id. ¶ 11. With M1 Energy’s promise to
pay and Ultra Green’s guarantee, Hepp accepted the offers, including the “biodiesel
financial swap,” and agreed to provide the financing to M1 Energy. Id. According to
Hepp, at all pertinent times Robert was acting on behalf of both M1 Energy and
Ultra Green and held himself out as having the authority to do so. Id.
On October 27, 2010, Hepp provided $112,000 to M1 Energy via wire transfer
through an intermediary. Id. ¶ 12. In return, M1 Energy promised to pay Hepp

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$125,000 on May 31, 2011 (“Note 1”). 1 Id. ¶ 12; see R. 53-2. Note 1 contained an
“unconditional guarantee” that Ultra Green would pay Hepp if M1 Energy
defaulted. Id. ¶ 13.
On December 17, 2010, President Obama signed H.R. 4853, the Tax Relief,
Unemployment Insurance Reauthorization, Job Creation Act of 2010 (Public Law
No: 111-312), extending several alternative fuel tax credits through December 31,
2011. Id. ¶ 14. The law included the biodiesel credits the parties here bargained
over, so basically, Hepp won. Id. Thus, Hepp was entitled to the $375,000 payout on
the biodiesel financial swap by March 31, 2011, from either M1 Energy or Ultra
Green. Id. M1 Energy and Ultra Green attempted to satisfy the $500,000 payment
obligation—i.e., the $125,000 promissory note and the $375,000 on the biodiesel
financial swap—via a cash payment and two additional notes. Id. ¶ 15.
On February 15, 2011, M1 Energy and Hepp entered into a secured note for
$125,000 (“Note 2”). Id. ¶ 16; see R. 53-3. Note 2 provides that M1 Energy will pay
interest each month at a rate of 18% and that M1 Energy will repay the indebtness
within 30 days of a demand by Hepp. Id. ¶ 17. It also included an “unconditional
guarantee” by Ultra Green, among other terms favorable to Hepp. Id. ¶ 18. The note
was signed by Robert, on behalf of M1 Energy as its President and Ultra Green as
its Managing Member. R. 53-3.
A week later, on February 22, 2011, Ultra Green wire transferred $250,000 to
a bank account for Hepp. Id. ¶ 22. Also on that day, Hepp and M1 Energy entered
With the agreed-upon interest rate of 18%, $112,000 on October 27, 2010, was the
present cash value of $125,000 on May 31, 2011. Id. ¶ 11.

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into a third note; this one in the amount of $ 45,398 (“Note 3”). Id. ¶ 23; see R. 53-4.
The principal amount of $245,398 2 represented the remainder of what Ultra Green
owed Hepp under their original biodiesel financial swap agreement. 3 R. 53 ¶ 23.
Hepp agreed to accept the note instead of additional cash payments from Ultra
Green. Id. Note 3 contained similar terms to those in Note 2, including an 18%
interest rate and a promise on behalf of Ultra Green to “unconditionally guarantee”
the note. Id. The note further stated that “[t]he indebtnedess . . . shall be payable on
demand plus 30 days.” R. 53-4. It was signed by Robert, on behalf of M1 Energy as
its President and Ultra Green as its Managing Member. Id.
On June 1, 2011, Hepp received $70,398 from M1 Energy, reducing the
outstanding amount owed to Hepp on Note 3 to $175,000. R. 53 ¶ 29. Since that
date, no further principal payments or interest payments have been made to Hepp.
Id.
On March 22, 2012, Hepp made a demand on M1 Energy to pay the required
interest payments and return the unpaid principal on Note 3. Id. ¶ 31. M1 Energy
has not done so. Id. Hepp discussed this lack of payment with Ultra Green and
demanded that Ultra Green fulfill its guarantor obligation on the note. Id. ¶ 32.
Ultra Green has refused to do so. Id. Hepp alleges that Robert, on behalf of Ultra
$245,398 on February 22, 2011, was equal to the present value of $250,000 on
March 31, 2011, using an 18% interest rate.

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Hepp’s amended complaint contains two different dates. He first alleges in his
amended complaint that the parties entered into the biodiesel financial swap on
October 5, 2010, R. 53 ¶ 9, but later alleges in a subsequent paragraph that the
agreement occurred on September 24, 2010. Id. ¶ 23. Both dates appear on the
agreement attached to Hepp’s amended complaint. See R. 53-1.

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Green and M1 Energy, recognized on various occasions in 2013 that both Ultra
Green and M1 Energy were legally obligated to pay Hepp. Id. ¶ 35. Hepp further
alleges that Robert and Cathy told other Ultra Green members and potential buyers
about Ultra Green’s obligation on Note 3. Id. ¶¶ 35-36. This includes an email dated
April 2, 2013, to various parties disclosing Ultra Green’s guarantee of Note 3; and
an email dated April 22, 2013, to Bill Pas, the agent for the eventual buyer of Ultra
Green, noting that Ultra Green owed Hepp $175,000 on the note. Id.; see R. 53-5; R.
53-6.
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
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.’”
Ashcroft, 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

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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
Ultra Green sets forth a number of arguments as to why Hepp’s amended
complaint should be dismissed; none are persuasive. 4 First, Ultra Green takes issue
with Hepp’s allegation that an “intermediary” provided the $112,000 that M1
Energy received on the first note. R. 55 at 2. The specific arguments being made
and the legal basis for them are not entirely clear, but Ultra Green seems to be
making an argument that there was a lack of a consideration on the notes and a
lack of standing on the part of Hepp to sue on the notes. Regarding a lack of
consideration, Ultra Green provides a general citation to Tcherepnin v. Franz, 457
F. Supp. 832, 837 (N.D. Ill. 1978), and argues that the consideration supporting
Notes 1, 2, and 3 is insufficient as pled because Ultra Green did not enter into an
agreement with the intermediary and Hepp has not set forth his relationship with
Ultra Green included various exhibits in its reply brief that were neither referred
to in Hepp’s amended complaint nor included in its motion to dismiss. The Court
will not consider these in its ruling because it is axiomatic that arguments and
issues raised in a reply brief are waived. United States v. Fluker, 698 F.3d 988, 1004
(7th Cir. 2012); see Harrison v. Helman, 191 F.3d 456, 456 (7th Cir. 1999) (striking
exhibits attached to the appellant’s reply brief). They also are not the type of
documents of which a court generally takes judicial notice. See Wigod v. Wells Fargo
Bank, N.A., 673 F.3d 547, 556 (7th Cir. 2012) (stating that a court may “consider
public documents and reports of administrative bodies that are proper subjects for
judicial notice, though caution is necessary, of course”).
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the intermediary. Therefore, according to Ultra Green, there was no consideration
supporting the notes. R. 55 at 4-5. But this argument misses the precise language
used in the allegation. Hepp alleges, “On or about October 27, 2010, Hepp provided
$112,000 to M1 Energy; Hepp did so via wire transfer through an intermediary.” R.
53 ¶ 12 (emphasis added). In other words, Hepp alleged that he was responsible for
providing the payment, regardless of the method by which it was transmitted and
later received. That is a sufficient allegation to support a finding of consideration at
the motion to dismiss stage. He does not need to provide “the source of funds,” as
Ultra Green contends, R. 55 at 4, as long as he alleges that the $112,000 was
provided on his behalf. See Urban Sites of Chi., LLC v. Crown Castle USA, 979
N.E.2d 480, 493 (Ill. App. Ct. 1st Dist. 2012) (“Any act of promise which is of benefit
to one party or disadvantage to the other is sufficient consideration to support a
contract.” (quoting Steinberg v. Chi. Med. School, 371 N.E.2d 634, 639 (Ill. 1977))).
Ultra Green’s standing argument is non-availing. Ultra Green provides the
following hypothetical:
Suppose it agrees to settle with Hepp, how would such a settlement
prevent the intermediary from pressing a claim for $112,000, plus
interest, against UGES? Under that scenario UGES would be
subjecting itself to civil double jeopardy. UGES should not be required
to accept such a risk.
R. 55 at 5. This speculative situation does not address the substance of Hepp’s claim
and cuts directly against the motion to dismiss standard of taking all alleged facts
as true and drawing all inferences in favor of the non-moving party. Hepp alleges
that he provided the funds—and directly provided them to M1 Energy, not Ultra

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Green. R. 53 ¶ 12. That is enough to establish Hepp’s standing to bring a claim
related to the payment. Additionally, as Hepp acknowledges in his response, Hepp
is actually seeking payment from Ultra Green on Note 3, under which M1 Energy
agreed to pay him $245,398 and Ultra Green agreed to be M1 Energy’s guarantor.
R. 58 at 2-3. It is undisputed that Hepp is listed as the “Lender” on the note, M1
Energy as the “Borrower,” and Ultra Green as the “Guarantor.” R. 53-4. Thus,
there can be no doubt at this stage that Hepp has standing to bring a claim for
breach of contract on Note 3.
Finally, Ultra Green argues that Hepp has not satisfied the $75,000
jurisdictional requirement of 28 U.S.C. § 1332 because $125,000 must be subtracted
from the amount to which Hepp claims he is entitled. R. 55 at 5. This argument
fails because, as discussed above, there is no issue regarding the $112,000 (plus
interest) consideration payment at this stage. Additionally, the amount in
controversy is determined by the amount a plaintiff is seeking, not what he
ultimately may recover. See Grinnell Mut. Reinsurance Co. v. Haight, 697 F.3d 582,
585 (7th Cir. 2012). Hepp alleges that he is entitled to $175,000, which is based on
Note 3 and the allegation that he has only received $70,398 towards the $245,398
obligation, plus attorney’s fees. R. 53 ¶ 29. That satisfies the $75,000 amount in
controversy requirement.

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CONCLUSION
Ultra Green’s motion to dismiss Hepp’s amended complaint, R. 54, is denied.
The parties are directed to appear at the previously-scheduled status hearing set for
June 4, 2014, at 9:00 a.m.
ENTERED:
______________________________
Honorable Thomas M. Durkin
United States District Judge

Dated: May 22, 2014

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