A secondary lender that backed American Sentry Guard of Greenwood says JP Morgan Chase acted improperly when it repossessed the security firm's assets and auctioned them in 2008 for less than $200,000.
Indiana Community Business Credit Corp., a mezzanine lending group based in Indianapolis, filed suit against Chase bank May 28 in Marion County Superior Court. The lawsuit alleges that Chase breached its contract with ICBCC, the junior lender, and that it violated the Uniform Commercial Code by failing to give ICBCC notice of its plans to dispose of American Sentry Guard's assets.
The lawsuit goes on to accuse the local operations of New York-based Chase of unjust enrichment and asks the court to void the asset sale to Integrated Security Solutions, a small Indianapolis security firm. ICBCC claims that although the auction netted a fraction of the $1.5 million American Sentry owed, Chase stood to benefit financially from a credit relationship with Integrated Security Solutions.
ICBCC's investors are 32 banks that are based or have operations in Indiana, and it typically gets involved in deals in which one of its members is the senior lender. ICBCC's attorneys at local law firm Katz & Korin did not return calls seeking comment.
Chase's attorneys at Kroger Gardin & Regas in Indianapolis have successfully moved the case to U.S. District Court in Indianapolis. The allegation that Chase and ISS have or ever had a business relationship is false, attorneys said in a July 1 filing. In an affidavit backing the defense, ISS partner Armando Perez said he learned about the August 2008 auction through an Internet notice.
Attorney Jim Knauer at Kroger Gardis said he wasn't authorized to provide further comment on the case.
American Sentry Guard, which made and sold digital surveillance systems, landed on Inc. magazine's list of fastest-growing private companies in 2006. That year it also received a $1.1 million loan from Chase, and ICBCC provided $750,000 to develop new technology.
According to ICBCC's complaint, American Sentry, led by Jack Brummett of Indianapolis, expected Chase to extend its line of credit in 2007 and prematurely extended credit to its own dealer network. Chase declared American Sentry in default in February 2008, but ICBCC worked to line up a buyer.
The Department of Defense had expressed an interest in American Sentry's product, and the rescue deal looked promising. American Sentry had valued its assets at $1.9 million, but in July of that year it notified Chase that it couldn't meet payroll. Shortly thereafter, the bank repossessed the firm's assets.