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Chesterton Capital LLC v. Legacy Point Capital LLC

United States District Court, D. Massachusetts

December 6, 2016

LEGACY POINT CAPITAL LLC, et al., Defendants.


          Leo T. Sorokin United States District Judge.

         For the reasons that follow, the Court DENIES Defendant Byron Holley's Motion to Dismiss (Doc. 24) and Defendants Legacy Point Capital LLC's (“LPC”) and John Loudon's Motion to Dismiss (Doc. 26). The Court also DENIES Mr. Holley's Motion to Strike and to Seal exhibits to Plaintiff's Opposition to the Motions to Dismiss (Doc. 29).[1]

         I. BACKGROUND

         A. Procedural Background

         On May 9, 2016, Plaintiff Chesterton Capital LLC filed a Complaint against Defendants, alleging they misrepresented information to induce Plaintiff to invest in a film production that ultimately failed. Doc. 1. On August 11, 2016, Mr. Holley filed his Motion to Dismiss (“Holley Motion”), and on August 12, 2016, Mr. Loudon and LPC filed their Motion to Dismiss (“Loudon Motion”). Docs. 24, 26. On August 25, 2016, Plaintiff filed an Opposition to both Motions. Doc. 28. On September 1, 2016, Mr. Holley filed his Motion to Strike and to Seal. Doc. 29. On September 13, 2016, Plaintiff filed an Opposition to that Motion. Doc. 31.

         B. The Complaint's Allegations[2]

         In 2012, LPC was raising funds for the production of a film biopic of Janis Joplin (“film project”). Doc. 1 at 3. The film was going to be produced by Get It While You Can, LLC (“GIWYC”), and the production had an estimated budget of $20 million. Id. at 3, 6. Through its managing members, Holley and Loudon, LPC represented that it “was willing to invest approximately” $10 million and was aiming to raise the remaining $10 million from investors. Id. at 3. LPC asked Anne Brensley, a consultant based in Massachusetts, to assist the company in raising funds, and authorized her to be LPC's agent in seeking out financing. Id.

         In or around September 2012, Ms. Brensley, on behalf of LPC, approached John P. Walsh, Plaintiff's managing director, about providing interim “bridge” financing to the film project. Id. Holley and Loudon authorized Ms. Brensley to seek $1.2 million from Plaintiff. Id. at 4. LPC “represented” - the Complaint does not specify how or through whom - to Plaintiff that it had an “exclusive” arrangement to finance the film project, and that it “had experience and expertise in raising financing for movies.” Id. In fact, unknown to Plaintiff, LPC was “newly incorporated in March of 2012, ” had lost its “exclusive arrangement, ” and had been “told it would be shut out of” the film project unless it could produce $1.2 million of bridge financing. Id.

         “Holley and Loudon . . . represented [to Plaintiff] that they had the remaining financing lined up but that they needed 60 to 90 days to close[, ] at which time the interim financing would be repaid.” Id. at 5. Based on that representation, Plaintiff considered making a loan to GIWYC. Id. Before doing so, however, Plaintiff requested “assurances that both Holley and Loudon” would be able to repay the loan if GIWYC defaulted. Id.

         On or about October 10, 2012, with the intention of inducing Plaintiff to advance bridge financing to GIWYC, Holley and Loudon “represented that they had no liens, encumbrances, bankruptcies or litigations against either one of them.” Id. On the same date, Holley “represented that he had over $3 million in cash and securities in his personal [Wells Fargo bank] account” and “provided a statement [purporting to be from Wells Fargo] with the account number blacked out.” Id. However, “[t]hat representation was false, ” and both Holley and Loudon knew as much. Id. Holley misrepresented his personal assets “for the specific purpose of getting the interim financing.” Id.

         On October 10, 2012, Plaintiff entered into a contract, called a “Deal Memo, ” with GIWYC, in which Plaintiff agreed to lend GIWYC $1.2 million. Id. at 5-6. Were it not for Holley's misrepresentation of his personal savings, Plaintiff would not have entered into the Deal Memo. Id. Holley and Loudon received $60, 000 for inducing Plaintiff to enter into the Deal Memo with GIWYC. Id. at 6.

         According to the terms of the Deal Memo, GIWYC agreed to repay Plaintiff the $1.2 million loan principal plus 17% interest by April 9, 2013. Id. at 6-7. GIWYC had the option to extend the due date up to 180 days in exchange for paying an additional 2.5% interest for each 30-day period of extension. Id. at 7. If GIWYC did not repay by April 9, 2013, or by any extension from that date, then it would be in default. Id.

         Under Section 4.1 of the Deal Memo, repayment of the loan was “guaranteed by Bryon Holley and John Loudon pursuant to the terms of the [Personal Guaranty] dated as of October 9, 2012.”[3] Id. The Personal Guaranty states that Holley and Loudon “hereby absolutely and unconditionally guarantee the prompt payment to [Plaintiff] of any and all amounts ow[ed] by [GIWYC] to [Plaintiff].” Id. (citation omitted). It further states that Holley and Loudon “shall remain liable hereunder until the Obligations of [GIWYC] have been fully paid, performed and observed.” Id.

         GIWYC did not pay off the $1.2 million loan by April 9, 2013, the initial due date. Id. LPC, Holley, and Loudon were not “able to obtain funds from the so-called commitments that they had received to finance the [film] project.” Id. at 7. Nevertheless, they claimed the project “was being delayed because [GIWYC] had not obtained the basic licenses to use Janis Joplin's music in the movie.” Id. at 8.

         On July 1, 2013, after being “approached to advance the necessary funds to acquire the licenses, ” Plaintiff lent $500, 000 to GIWYC, to be repaid by October 15, 2013. Id. Plaintiff “would not have advanced these funds but for the fact that it had already ...

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