United States District Court, Northern District of Illinois, E.D
December 2, 1982
MERCANTILE FINANCIAL CORPORATION, PLAINTIFF,
UPA PRODUCTIONS OF AMERICA AND HENRY SAPERSTEIN, DEFENDANTS.
The opinion of the court was delivered by: Bua, District Judge.
MEMORANDUM AND ORDER
Plaintiff Mercantile Financial Corporation ("Mercantile") has
brought the instant diversity action against Defendant UPA
Productions of America ("UPA") and its President, Henry
Saperstein, for breach of a security agreement. Defendants have
filed a motion to dismiss for lack of personal jurisdiction and
lack of venue. In the alternative, defendants have moved for a
transfer of venue based on the impropriety or inconvenience of
this forum. For the reasons stated herein, the motion to
dismiss is denied and the Court, based on a finding of improper
venue, pursuant to 28 U.S.C. § 1406(a), orders the cause
transferred to the United States District Court for the Central
District of California.
The facts of this matter as they pertain to the motion before
the Court are as follows: Plaintiff is a Delaware corporation
with its principal place of business in Illinois. Defendant UPA
is an entity incorporated under the laws of California. It also
maintains its principal place of business in that state.
Defendant Saperstein, the President of UPA, resides in
The instant action involves a release agreement entered into
between the parties in which the parties reaffirmed certain
security interests which plaintiff held in certain notes and
accounts receivable of the defendants. The purpose of the
release was to settle a debt of more than $2 million which
defendant owed to plaintiff.
Negotiations concerning the release took place in Illinois, as
did the execution of the contract. Under the agreement, the
amounts paid on the notes and accounts receivable were to be
sent to a "lock box" account held at the Bank of America in
California and then forwarded to Mercantile in Illinois.
Plaintiff's complaint alleges that the defendants have breached
the terms of the release in that the payments received have
Personal jurisdiction in this diversity action is governed by
Ill.Rev.Stat. Ch. 110, ¶ 2-209(a)(1) (formerly § 17(1)(a))
which is the Illinois "long-arm" statute. It provides that:
(a) Any person, whether or not a citizen or resident of this
State, who in person or through an agent does any of the acts
hereinafter enumerated, thereby submits such person, and, if an
individual, his or her personal representative, to the
jurisdiction of the Courts of this State as to any cause of
action arising from the doing of any of such acts: (1) The
transaction of any business within this State . . .
Mercantile contends that this Court has jurisdiction over the
defendants by virtue of their business dealings in Illinois
with plaintiff as well as with others. Defendants, on the other
hand, argue that their contacts with Illinois are insufficient
under Section 2-209(a)(1) and the due process clause of the
Fourteenth Amendment as interpreted by International Shoe Co.
v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945),
and its progeny, to render them subject to suit in Illinois.
The Court finds this argument unpersuasive and holds that the
cause of action arose directly from the transaction of business
within this state, thus subjecting defendants to the Court's
jurisdiction in the Northern District of Illinois.*fn1
Under Section 2-209(a)(1), a defendant is amenable to suit in
Illinois if it has transacted business in the state so long as
the litigation arises out of that business transaction. In the
instant case, Defendant Saperstein admits to having negotiated
and executed the release agreement in Illinois. Where a
defendant engages in negotiations of some substance in Illinois
regarding the transaction from which the cause of action arose,
the defendant is subject to suit in Illinois under Section
2-209(a)(1). See Scovill Manufacturing Co. v. Dateline
Electric Co., 461 F.2d 897 (7th Cir. 1972); Ronco, Inc. v.
Plastics, Inc., 539 F. Supp. 391, 396 (N.D.Ill. 1982).
Defendants' argument that it was not "doing business" in
Illinois is inconsequential. The "doing business" test applies
only to assert jurisdiction over an entity where the cause of
action is not related to the defendant's contacts in the state
and not where, as here, the jurisdictional basis and the
transaction are intertwined. Cook Associates, Inc. v.
Lexington United Corp., 87 Ill.2d 190, 57 Ill.Dec. 730,
429 N.E.2d 847 (1981).
Defendants contend that even if personal jurisdiction can be
asserted, venue is improper under 28 U.S.C. § 1391(a) which
A civil action wherein jurisdiction is founded only on
diversity of citizenship may, except as otherwise provided by
law, be brought only in the judicial district where all
plaintiffs or all defendants reside, or in which the claim
While the plaintiff, Mercantile, maintains its principal place
of business in Illinois, for venue purposes a corporate
plaintiff "resides" only in the state of incorporation. Reuben
H. Donnelly Corp. v. F.T.C., 580 F.2d 264
, 270 (7th Cir.
1978); DC Electronics, Inc. v. Schlesinger, 368 F. Supp. 1029
(N.D.Ill. 1974). Mercantile, as a corporate plaintiff, is
therefore deemed a resident not of Illinois, but only of
Delaware for venue purposes in this diversity action.
Likewise, defendants are not residents of Illinois. The
corporate defendant, UPA, is incorporated under the laws of
California and maintains its principal and only place of
business in that state. Defendant Saperstein, an individual, is
a resident of California.
In light of the foregoing, venue could only be invoked in this
forum if the claim arose here within the meaning of § 1391(a).
Determining where the claim arose is no
easy task as "there is no reliable touchstone to the meaning of
`where the claim arose.'" 1 Moore's Federal Practice ¶
There are numerous tests which could be used to determine where
a claim arose for purposes of venue in a diversity
action.*fn2 While each test has its strengths and
weaknesses, none has emerged as being clearly preferable.
Unfortunately, in considering this matter in Leroy v. Great
Western United Corp., 443 U.S. 173, 99 S.Ct. 2710, 61 L.Ed.2d
464 (1979), the Supreme Court expressly declined to resolve the
dispute. The Court did note, however, that:
[T]he broadest interpretation of the language of § 1391(b)
(which also relates to where the claim arose) that is even
arguably acceptable is that in the unusual case in which it is
not clear that the claim arose in only one specific district, a
plaintiff may choose between those two (or conceivably even
more) districts that with approximately equal plausibility
. . . may be assigned as the locus of the claim.
Id. at 184-5, 99 S.Ct. at 2717.
The Leroy Court concedes that a claim may arise in more than
one place. Further, by its discussion of "equal plausibility,"
it would appear that the Court favors the approach under which
various factors are weighed over one which mechanically assigns
the situs of a portion of the transaction as the place where
the claim arose. In light of the Court's dictum, this Court is
of the belief that the "weight of contacts" approach espoused
by Judge Conner in Honda Associates v. Nozawa Trading,
374F. Supp. 886 (S.D.N.Y. 1974) is the most workable and most
appropriate analysis for resolution of the issues before the
In Honda Associates, the Court was faced with the
determination of where a claim arose in a trademark action in
which a California defendant was allegedly infringing upon a
trademark held by a New York plaintiff. Defendants' contacts
with the State of New York were minimal and were entirely by
mail. In holding that the claim did not arise in New York, the
Court noted first the fundamental distinction between
jurisdiction and venue and went on to say that venue may be
improper notwithstanding that jurisdiction has been
established. Judge Connor also stated that the "weight of
contacts" within a forum state had to be substantial before
venue could be considered proper. "[T]he right . . . to sue in
any district `in which the claim arose' is not the right to sue
where any part of the claim, however small, arose." 374
F. Supp. at 892.
In Coface v. Optique du Monde, Ltd., 521 F. Supp. 500
(S.D.N.Y. 1980), Judge Connor again faced the issue of where a
claim arose. In Coface, the plaintiff, an agency of the
government of France, acquired a security interest in various
debts owed by defendant, Optique, to numerous French
manufacturers. Certain individuals who were residents of
Illinois signed the payment agreement as guarantors of
When Optique defaulted on its obligations, the plaintiffs sued
it and the guarantors in the Southern District of New York. The
guarantors then moved to dismiss the matter or, in the
alternative, to transfer the
case to the Northern District of Illinois. In holding that
venue was proper in the Northern District of Illinois, the
Court considered the fact that the guarantors resided in
Illinois and that they were obliged to perform their
obligations in that district as requiring a conclusion that the
claim arose in Illinois. This conclusion was reached
notwithstanding plaintiff's argument that the agreement was
executed in New York, that payments were to be credited through
a New York bank, and that the agreement contained a clause by
which the parties consented to the jurisdiction of the New York
state and federal courts.*fn3
Notwithstanding its conclusion, the Court noted that, under
Leroy, it could be argued that the claim arose in both
Illinois and New York. In this regard, the Court considered
whether the two districts could be designated as the situs of
the claim with "equal plausibility," (quoting Leroy, 443 U.S.
at 185, 99 S.Ct. at 2717) and concluded that based on the
residence of the parties, the alleged places of execution and
performance, and other similar factors, the New York forum was
not as plausible a forum as the Northern District of Illinois.
The instant case is similar to Optique. The defendants in the
case at bar are California residents; the accounts receivable
were maintained in California; the payments on the accounts
were made and processed through a California bank; and all
accounting and other bookkeeping was done in California. By
comparison, the connection with Illinois is that the agreement
was executed here and that plaintiff maintains an office and is
forwarded payments here. Both parties have alleged the presence
of numerous witnesses and documents in the respective states.
Having weighed the contacts in the instant case, the Court is
of the opinion that the claim arose, for purposes of § 1391, in
The instant case could and should have been brought in the
District Court for the Central District of California as that
is where the claim arose. Accordingly, pursuant to 28 U.S.C. § 1406(a),
the Court orders this matter transferred to that
district in the interest of justice. Defendants' motion to
dismiss is therefore denied and the motion to transfer is
IT IS SO ORDERED.