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Mahajan v. Boxcar Holdings, LLC

United States District Court, D. Colorado

January 31, 2019

RAKESH MAHAJAN, Plaintiff,
v.
BOXCAR HOLDINGS, LLC, a Colorado LLC, NICK GULOTTA, and CARRIE GULOTTA, Defendants.

          ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

          CHRISTINE M. ARGUELLO UNITED STATES DISTRICT JUDGE

         This matter is before the Court upon Plaintiff Rakesh Mahajan's Motion for Summary Judgment. (Doc. # 49.) The Court, having reviewed all filings, exhibits, and relevant case law, and being fully advised in the premises, grants Plaintiff's Motion for Summary Judgment.

         I. BACKGROUND

         Plaintiff is an individual who has had dealings with a number of small businesses. (Doc. # 52 at 2.) Defendant Boxcar Holdings, LLC (“Defendant Boxcar”), is a Colorado limited liability company in the asset disposal business; it “purchases unused or unwanted assets from companies, mostly automobiles, and sells them to auctions and dealers.” (Id.) Critical to Defendant Boxcar's business is “access to capital to purchase large quantities of automobiles, ” and its primary challenge is “reducing the cost of borrowing capital.” (Id.) Defendant Nick Gulotta is the sole member and owner of Defendant Boxcar. (Doc. # 8 at 1.) He and his spouse, Defendant Carrie Gulotta (together, the “Gulotta Defendants”), are domiciled in Colorado. (Id. at 2.)

         In late 2016, Plaintiff and Defendant Nick Gulotta began discussing ways in which Plaintiff could be involved in Defendant Boxcar's business. (Doc. # 52 at 2.)

         On January 6, 2017, Plaintiff and Defendant Boxcar executed a Secured Promissory Note (the “First Note”), under which Plaintiff loaned Defendant Boxcar $600, 000.00. (Doc. # 8-1.) The First Note required Defendant Boxcar to repay the $600, 000.00 loan, with 17.5% interest per annum, by April 10, 2017. (Id. at 1.) The First Note is secured by “a first priority security interest on all [Defendant Boxcar's] vehicles in inventory . . . [and] in all of the assets of [Defendant Boxcar].” (Id. at 3.) The First Note provides that Plaintiff is entitled to recover “costs of suit and reasonable attorney fees” in pursuing a claim against Defendant Boxcar to recover amounts owed under the note. (Id.) It also states that it is to be construed according to the laws of Colorado. (Id. at 4.)

         Also on January 6, 2017, contemporaneously with the parties' execution of the First Note, Plaintiff and Defendant Boxcar entered into a Security Agreement. (Doc. # 8-2.) Pursuant to the Security Agreement, Defendant Boxcar granted Plaintiff a “continuing security interest” in “all machinery and equipment, ” “all inventory (including vehicles), ” “all accounts, contract rights, . . . investment property and general intangibles, ” and “all deposit accounts.” (Id. at 1.) The Security Agreement also requires Defendant Boxcar to reimburse Plaintiff “for all attorney fees, legal expenses and other expenses” Plaintiff incurs in protecting and enforcing his rights under the Security Agreement. (Id. at 6.)

         On the same day, January 6, 2017, Plaintiff and the Gulotta Defendants executed a Guaranty, under which the Gulotta Defendants agreed to “jointly and severally, absolutely, unconditionally and irrevocably guarantee prompt payment when due and at all times in the future of the indebtedness evidenced by [the First Note], in the original principal amount of $600, 000.00.” (Doc. # 8-3 at 1.) The Guaranty allows Plaintiff to recover attorney fees and litigation costs. (Id.)

         On February 13, 2017, Plaintiff and Defendant Boxcar executed a second Secured Promissory Note (the “Second Note”), in which Plaintiff loaned Defendant Boxcar an additional $200, 000.00. (Doc. # 8-4.) Like the First Note, it required Defendant Boxcar to repay the $200, 000.00 loan, with 17.5% interest per annum, by April 10, 2017. (Id.) The Second Note is virtually identical to the First Note in all material respects, including terms regarding an event of default, acceleration, governing law, and attorney fees and costs. See generally (id.; Doc. # 8 at 7.)

         On July 14, 2017, Plaintiff and Defendant Boxcar executed a third Secured Promissory Note (the “Third Note”) pursuant to which Plaintiff loaned Defendant Boxcar another $200, 000.00. (Doc. # 8-5.) The Third Note required Defendant Boxcar to repay the $200, 000.00 loan, with 17.5% interest per annum, by September 14, 2017. (Id.) The Third Note is virtually identical to the First and Second Notes in all other regards. See generally (id.; Doc. # 8 at 8.)

         Between January 2017 and August 2017, Plaintiff and Defendant Nick Gulotta contemplated Plaintiff making an equity investment in Defendant Boxcar by converting the Notes to a membership interest in the company. (Doc. # 52 at 3.) By August 9, 2017, Plaintiff and Defendant Nick Gulotta had drawn up documents to formalize Plaintiff's equity investment in Defendant Boxcar. (Id. at 6; Doc. # 52-1 at 106-08.) These documents included a Membership Interest Purchase Agreement, a Release of the Personal Guaranty, a Termination Agreement (regarding the Notes), and an Operating Agreement. (Doc. # 52-1 at 41-89, 106-08.) The parties never executed these documents. On or about August 14, 2017, Plaintiff informed Defendant Nick Gulotta that he had made a final decision not to make an equity investment in Defendant Boxcar. (Doc. # 52 at 7.)

         Defendant Boxcar did not repay the amounts due under the Notes by the maturity dates set forth therein-April 10, 2017, for the First Note and Second Note, and September 14, 2017, for the Third Note. (Doc. # 49 at 7.)

         However, between February 2017 and October 2017, Defendant Boxcar “made monthly interest payments under the First Note, the Second Note, and the Third Note in an amount totaling $105, 126.26.” (Doc. # 8 at 8.) At some point in that time span, the parties came to an understanding that “[d]espite the earlier maturity dates set forth in the [N]otes, ” Defendant Boxcar would “continue to make monthly interest payments (at 15% per annum rate) under each of the [N]otes, and Boxcar would pay the remaining balance due under the [N]otes on agreed-upon dates in 2018, including the principal and interest (at a 2.5% per annum rate).” (Id.) It is undisputed that since November 2017, Defendant Boxcar has not made any payments due to Plaintiff under the Notes. (Doc. # 49 at 7.)

         On March 5, 2018, Plaintiff initiated this action against Defendants. (Doc. # 1.) Plaintiff asserts two causes of action: (1) breach of contract of the three Notes against Defendant Boxcar; and (2) breach of contract of the Guaranty against the Gulotta Defendants. (Doc. # 8 at 10-12.) He seeks damages and recovery of his attorney fees and costs. (Id. at 12.)

         Defendant Boxcar and Defendant Carrie Gulotta assert eight affirmative defenses in their joint Answer:

1. Failure to state a claim upon which relief may be granted;
2. The doctrine of unclean hands;
3. Promissory estoppel;
4. “[P]revention of ...

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