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Tissue Technology LLC v. TAK Investments LLC

United States District Court, E.D. Wisconsin

March 19, 2018

TISSUE TECHNOLOGY LLC, et al., Plaintiffs,
v.
TAK INVESTMENTS LLC, et al., Defendants.

          DECISION AND ORDER OF DISMISSAL

          William C. Griesbach, Chief Judge United States District Court.

         Plaintiffs commenced this diversity action for breach of contract and for recovery on four promissory notes having a total face value of $16.4 million. The plaintiffs are four Wisconsin entities-Tissue Technology, LLC, Partners Concepts Development, Inc., Oconto Falls Tissue, Inc., and Tissue Products Technology Corp. (collectively the “OFTI Group”)-controlled by Ronald Van Den Heuvel. The three corporate plaintiffs are each incorporated in the State of Wisconsin and have their principal places of business in De Pere, Wisconsin. Tissue Technology, LLC, has three members: Ronald J. and Kelly Van Den Heuvel, who are both citizens of Wisconsin; and Steven C. Peters, who is a citizen of the State of Illinois. Defendant Tak Investments, LLC, has two members: defendant Sharad Tak, a citizen of Florida; and Mahinder Tak, a citizen of Maryland. The court has jurisdiction under 28 U.S.C. § 1332.

         Plaintiffs originally sued Tak Investments, LLC (“Tak Investments”), but in an amended complaint added claims against its manager, Sharad Tak (“Tak”). At this stage in the litigation, the Plaintiffs' sole remaining claim seeks recovery on the four promissory notes (the “Investment Notes”) executed by Tak Investments in April 2007, which with interest now amount to more than $34 million. During a bench trial on September 18-19, 2017, the court heard testimony from several witnesses, including Van Den Heuvel and Tak. The parties filed post-trial briefs, and the matter is now ready for decision. For the reasons stated below, I find that at least as to Plaintiffs, recovery on the Notes is barred by the terms of the contract that led to their issuance and because Plaintiffs are not in possession of the Notes. Because the Plaintiffs cannot recover, their claims will be dismissed.

         BACKGROUND AND PROCEDURAL HISTORY

         This case arises out of a convoluted and bizarre series of business transactions between Van Den Heuvel, Tak, and various entities they each control. Though serious credibility issues were raised as to each party's principal, the case is largely determined by the undisputed facts and written exhibits. In 2005 and continuing throughout 2006, Van Den Heuvel and Tak began discussing prospective business arrangements between their companies, including the sale by Van Den Heuvel and purchase by Tak of an existing tissue mill in Oconto Falls, Wisconsin, as well as the construction of new mills across the country. As relevant here, on April 16, 2007, ST Paper, LLC, a Delaware entity controlled by Tak, closed on an agreement to purchase the assets of Oconto Falls Tissue, Inc., from the OFTI Group for $86.4 million. Ex. 7 at 3; Ex. 8 at 1.

         On that same day and separate from the Asset Purchase Agreement, Tak and Tak Investments entered into a Final Business Terms Agreement (“FBTA”) with Van Den Heuvel and the OFTI Group. Ex. 11. At the same time and as contemplated by the FBTA, Tak Investments executed the Investment Notes, four promissory notes naming Tissue Products Technology Corp. (“TPTC”) as payee. Ex. 11A. The Investment Notes had values of $4.4 million, $3 million, $4 million, and $5 million, respectively, for a total amount of $16.4 million. The terms of the FBTA and the Notes are interrelated and at the core of this dispute.

         The $4.4 million note established the following payment terms:

FOR VALUE RECEIVED, the undersigned, TAK INVESTMENTS, LLC . . . hereby promises to pay to the order of TISSUE PRODUCTS TECHNOLOGY CORP. . . . or such other . . . designee as the Payee shall from time to time direct in writing to the Maker the principal sum of Four Million Four Hundred Thousand Dollars ($4, 400, 000). The unpaid principal balance of this Note shall bear interest at a rate per annum equal to eight percent (8%), per annum. Interest shall accrue from the date hereof and shall be payable on a semi-annual basis commencing on October 16, 2007. Principal hereon shall be due and payable in the amount of $440, 000 on April 16, 2008, $440, 000 on April 16, 2009 and $3, 520, 00 on April 16, 2010. Interest will be calculated based on a year consisting of 360 days applied to the actual days on which there exists an unpaid balance hereunder.

         Ex. 11A at 1. All four Investment Notes had an identical interest structure consisting of the 8% annual interest rate and semi-annual interest payments. Across all four Notes, the three-year principal repayment schedule was also identical: 10% of the original principal balance was due on the first and second anniversaries of the Notes' execution, and the remaining principal balance was due on the third anniversary. The Notes state that they were made “FOR VALUE RECEIVED, ” but the parties dispute whether Tak Investments received any consideration for them.

         Turning to the FBTA, two consecutive paragraphs pertaining to the Investment Notes are relevant to this litigation. First, paragraph 2(G) addresses payments under the Investment Notes:

Through the third anniversary of the date of each Investment Note, the OFTI Group agrees to pay any payments due for interest or principal required per the terms of the Investment Notes. Each member of the OFTI Group jointly and severally agrees to indemnify [Tak Investments] and to hold it harmless from and against any and all damages, losses, deficiencies, actions, demands, judgments, fines, fees, costs and expenses, including, without limitation, attorneys' fees, of or against [Tak Investments] resulting from the OFTI[] Group's failure to make such payments, which shall include, without limitation, any claims made by any current or future holder of such Investment Notes against [Tak Investments] relating to such interest payments. If such Investment Notes are deemed cancelled by the OFTI Group after the third anniversary of the date of the Investment Notes, the OFTI Group shall receive an undiluted 27% ownership interest of the highest class in [Tak Investments] . . .; provided however, if phase 2, as defined below, occurs after the transfer of ownership interest and prior to the tenth anniversary of the date of the Investment Notes, the OFTI Group shall return any ownership interests received from the Investment Notes.

         Ex. 11 at 2. Next, paragraph 2(H) discusses the relationship between the Investment Notes and the “Phase 2” already mentioned in paragraph 2(G):

Each member of the OFTI Group agrees if the Phase 2 Financing (as defined below) is consummated on or before the tenth (10th) anniversary of the date of each Investment Note, the unpaid principal balance of each Investment Note shall be automatically reduced to zero, [Tak Investments] shall have no obligation to pay any unpaid principal or accrued interest thereunder, and each Investment Note shall be deemed cancelled. For purposes of this Agreement, “Phase 2 Financing” shall mean the consummation by [Tak Investments] (whether individually or in conjunction with an affiliated entity) or Tak (or an entity controlled by Tak) of financing to acquire the existing facility and construct a linerboard and/or tissue machine at the site presently owned by Eco Fibre, Inc. located at 500 Fortune Avenue in De Pere, Wisconsin using [Spirit Construction Services, Inc.] as general contractor with a minimum construction contract of $315, 000, 000.

Id. at 2-3.

         The Phase 2 contemplated by the FBTA never occurred, and no entity controlled by Tak ever entered into a $315 million contract with Spirit Construction, a company owned by Van Den Heuvel's brother, to build one or more tissue mills. After Phase 2 failed to materialize, Plaintiffs sent notice to Tak Investments on September 17, 2009, stating that payments due under the Investment Notes had not been received. Ex. 18. On April 20, 2010, Plaintiffs sent notice “that the Investment Notes have been deemed cancelled.” Ex. 19. Observing that the cancellation occurred after the third anniversary of the signing of the Investment Notes, the notice asked Tak Investments to “issue [an] undiluted 27% ownership Interest of the highest class units” in itself under paragraph 2(G) of the FBTA. Id. Plaintiffs filed a previous lawsuit against Tak Investments in this court seeking specific performance of that ownership transfer obligation. I granted summary judgment in favor of ...


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