II. The Defendants' Contacts With Illinois
A. Bayshores and Its Employees, Kublmann and Kim
Plaintiff claims that the Removing Defendants had sufficient contacts
with Illinois to satisfy the due process requirements of the Constitution
based on the following: the terms and conditions of the Wholesale
Agreement, including a provision which provided for arbitration
resolution in Oak Brook, Illinois; the fact that the Wholesale Agreement
was signed on behalf of United Financial in Oak Brook, Illinois; their
dealings with United Financial, which has a corporate headquarters and
principle place of business in Oak Brook, Illinois; the number of
mortgages brokered by Bayshores with United Financial; the authorization
of wire transfer from Oak Brook, Illinois; and its contention that
Defendants sought out United Financial for the transactions at issue.
Plaintiff first argues that personal jurisdiction is conferred through
the contract entitled Wholesale Agreement. In contract disputes it is
only the "`dealings between the parties in regard to the disputed
contract' that are relevant to minimum contact analysis." RAR, 107 F.3d
at 1278 (quoting Vetrotex Certainteed Corp. v. Consolidated Fiber Glass
Prods. Co., 75 F.3d 147, 153 (3rd. Cir. 1996)) (emphasis in original). It
is clear that "an out-of-state party's contract with an in-state party is
alone not enough to establish the requisite minimum contacts." Id. at
1277 (citing Burger King, 471 U.S. at 474-75). The Court will then look
to "`prior negotiations and contemplated future consequences, along with
the terms of the contract and the parties' actual course of dealing'
[which] may indicate the purposeful availment that makes litigating in
the forum state foreseeable to the defendant." Hyatt, 302 F.3d at 716.
Here, all Removing Defendants actions relating to the contract took place
in California and not in Illinois.
The Wholesale Agreement's arbitration clause sets forth an Illinois
forum for arbitration. That clause specifically provided that any dispute
would be arbitrated in the City of Oak Brook, Illinois. It is
well-settled that parties may consent either implicitly or explicitly in
advance to submit their controversies to a particular forum. See
Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 104
S.Ct. 1868, 80 L.Ed.2d 404 (1984); Heller Fin., Inc. v. Midwhey Powder
Co., Inc., 883 F.2d 1286, 1290 (7th Cir. 1989); Hanson Eng'rs v. UNECO,
Inc., 64 F. Supp.2d 797,800 (N.D. Ill 1999). Consent to suit in a
particular forum is an independent ground for the exercise of personal
jurisdiction, separate and distinct from any personal jurisdiction based
on an analysis of minimum contacts. See Burger King, 471 U.S. at 473 n.
14, 105 S.Ct. 2174. Plaintiff argues that the arbitration clause alone is
enough to confer personal jurisdiction over the Removing Defendants.
In this instance, however, the forum selection clause is not enough.
The clause only pertains to the arbitration of disputes between Bayshores
and United Financial; it does not address a forum for litigation. The
Plaintiff does not cite to any case where a court held that the defendant
had consented to jurisdiction to litigate in a particular forum based
solely on the parties' agreement to arbitrate in that forum. The Seventh
Circuit has not confronted the issue, but other federal courts have found
that a clause stating the forum for arbitration does not alone confer
personal jurisdiction. See BP Chem. Ltd. v. Formosa Chem. & Fibre
Corp., 229 F.3d 254, 261-62 (3rd Cir. 2000) (agreement to
arbitrate in forum "offers most substantial support" for personal jurisdiction, but
was "not sufficient to carry the day."); Kahn Lucas Lancaster, Inc. v.
Lark Int'l Ltd., 956 F. Supp. 1131, 1138-39 (S.D.N.Y. 1997) (arbitration
clause alone did not give court jurisdiction); cf. CutCo Indus., Inc. v.
Naughton, 806 F.2d 361, 366-67 (2th Cir. 1986) (forum clause in
arbitration agreement was irrelevant when the cause of action being sued
upon was not itself arbitrable). Those courts holding that personal
jurisdiction existed found more contacts existed than just the agreement
to arbitrate in that state. See, e.g., Fireman's Fund Ins. Co. v.
National Bank of Cooperatives, 103 F.3d 888, 893-895 (9th Cir. 1996)
(actual arbitration in state, preceded by agreement to arbitrate in that
state was enough to confer jurisdiction).
The Wholesale Agreement clearly provides for arbitration of disputes in
Oak Brook, Illinois. Plaintiff elected not to compel arbitration in this
case, however, thus they cannot rely on the clause to bring suit against
the Removing Defendants in Illinois. The Wholesale Agreement did not
provide for the "future consequence" of litigation in Illinois, even
though the plaintiff could have included a forum selection clause for
litigation in the Wholesale Agreement, but they did not do so. The
arbitration clause alone is not enough to satisfy the minimum contacts
requirement of the due process clause.
Plaintiff next attempts to show sufficient contacts through Bayshores
allegedly seeking out United Financial to finance the loans for the
transactions at issue in this case. It is clear that "whether the
defendant solicited the transaction in question within the proposed
forum" is a relevant fact in assessing minimum contacts. Federated Rural
Elec. Ins. Corp. v. Inland Power & Light Co., 18 F.3d 389, 394 (7th
Cir. 1994). In this case, however, Bayshores solicited United Financial
in Irvine, California, not in the Northern District of Illinois.
Bayshores never contacted the Oak Brook, Illinois office. Its initiation
of the business in California does not make its being sued in Illinois
reasonably foreseeable. Accordingly, this factor does not satisfy the due
process requirements of the Fourteenth Amendment.*fn5
Plaintiff also points to the fact that United Financial's President,
Joseph Khoshabe, signed the Wholesale Agreement in Illinois. It claims
that through this signature, the contract was created in Illinois. The
order of events shows that Bayshores initially signed the contract in
California, then forwarded it to United Financial's office in Irvine,
California. In turn, the Irvine office sent it to Oak Brook, Illinois for
signature. While plaintiff correctly states that Mr. Khoshabe's signature
on the Wholesale Agreement in Oak Brook, Illinois actually created the
contract because it was the last chronological act, Gordon v. Tow,
498 N.E.2d 718, 722-23 (Ill.App. Ct. 1986), "this factor alone is simply
not enough to tilt the balance in favor of asserting personal
jurisdiction." Heller Fin. v. Ohio
Sav. Bank, 158 F. Supp.2d 825, 829
(N.D. Ill. 2001). This is especially true here where there is no evidence
that Bayshores knew the contract would be finalized in Illinois.
Plaintiff further claims that jurisdiction is appropriate because its
Illinois financial office had to authorize or initiate the wire transfers
for the loans at issue in the case. These wire transfers from the
plaintiff to California were not enough to establish minimum contacts.
Asset Alloc. & Mgmt. Co. v. Western Empl. Ins. Co. F.2d 566, 569-70
(7th Cir. 1989) (payment of checks insufficient for minimum contacts);
Tri-Meats, Inc. v. NASL Corp., 2001 WL 292621, at *7 (N.D. Ill. Mar. 26,
2001) (wire transfer to Illinois "not enough" to satisfy jurisdiction);
FCNBD Mortgage Invs., Inc., v. CRL, Inc., No. 00 C 405, 2000 WL 1100332,
at *4 (N.D. Ill. Aug. 4. 2000) (wire transfer to Chicago insufficient to
establish personal jurisdiction).
Even when looking as these contacts as a whole, plaintiff has not
established sufficient minimum contacts to assert personal jurisdiction
over Bayshores or its employees Kim and Kuhlmann. These contacts are
fortuitous and do not demonstrate that the Removing Defendants
"purposefully established minimum contacts within" Illinois." Burger
King, 471 U.S. at 476.
B. Defendant Yi
Defendant also asserts personal jurisdiction over Shelly Yi based on a
$57,000 wire transfer from the Lanzafame transaction that she received
from a United Financial account in Illinois. Yi contends in her affidavit
that she mistakenly received the money and that she returned it to the
seller of the property.
It is uncontested that Yi was not a party to the Wholesale Agreement,
did not have a separate contract with United Financial, never traveled to
Illinois in connection with the transactions at issue and never had any
conversations with anyone at United Financial. Taking the allegations in
the light most favorable to United Financial, the mere receipt of a wire
transfer from an Illinois account is not sufficient to establish personal
jurisdiction over Yi. See Asset Alloc. & Mgmt, 892 F.2d at 569-70;
Tri-Meats, Inc., 2001 WL 292621, at *7 She did not have any other
contacts with Illinois. This receipt, even if it was not a mistake, did
not put her on notice that she could be haled in a court in Illinois.
Accordingly, this court does not have personal jurisdiction over Yi.
C. Fiduciary Shield Doctrine
Defendants Kim and Kuhlmann, both citizens of California, also argue
that the Court does not have personal jurisdiction over them under the
"fiduciary shield doctrine." That doctrine precludes courts in Illinois
from exercising jurisdiction over a non-resident corporate official when
the only contacts that individual has with Illinois are made in his or
her corporate capacity. See Rice v. Nova Biomedical Corp., 38 F.3d 909,
912 (7th Cir. 1994) ("This doctrine . . . denies personal jurisdiction
over an individual whose presence and activity in the state in which the
suit is brought were solely on behalf of his employer or other
principal.") (internal citations omitted)), cert. denied, 514 U.S. 1111,
115 S.Ct. 1964, 131 L.Ed.2d 855 (1995). As the Illinois Supreme Court has
noted, where an individual defendant's conduct in Illinois "was a product
of, and was motivated by, his employment situation and not his personal
interests, . . . it would be unfair to use this conduct to assert
personal jurisdiction over him as an individual." Rollins v. Ellwood,
565 N.E.2d 1302, 1318 (Ill. 1990).
The fiduciary shield doctrine, however, is discretionary or
"equitable," rather than an absolute entitlement. Burnhope v. National
Mortgage Equity Corp., 567 N.E.2d 356, 363-64 (Ill.App. Ct. 1990).
Moreover, courts have held that it does not apply to "an individual who
is a high-ranking company officer or shareholder [who] has a direct
financial stake in the company's health." See R-Five, Inc. v. Sun Tui,
Ltd., No. 94 C 4100, 1995 WL 548633, at *5 (N.D. Ill. Sept. 12, 1995)
(personal jurisdiction existed where defendant was "president, board
member, and (most importantly) shareholder of corporation" and "was not
merely obeying the orders of his superiors."). "The determinative factor
is the individual's status as a shareholder, not merely as an officer or
director." Plastic Film Corp. of Am., Inc. v. Unipac, Inc.,
128 F. Supp.2d 1143, 1147 (N.D. Ill. 2001). There is no allegation that
either Kim or Kuhlmann was a shareholder or had a direct financial stake
in the company.
Here, Bayshores employed Kim as a mortgage loan processor. Every
contact Kim had with United Financial was made in her corporate
capacity. Kim processed the loan applications for the four loans in
question. She then took the papers to her supervisor, Kuhlmann, for his
review and signature. There is no allegation that she stood to profit
from the alleged wrongdoing. Furthermore, she did not have any direct
contact with Illinois. Accordingly, even if the plaintiff had established
minimum contacts over Kim, the fiduciary shield doctrine would protect
her from personal jurisdiction in Illinois.
Similarly, Kuhlmann's indirect dealings on the loans in question took
place in his corporate capacity as President of Bayshores. He signed the
loan applications. Plaintiff has not alleged that he stood to profit from
the alleged mortgage fraud scheme or that he had a direct financial stake
in Bayshores. Accordingly, the fiduciary shield doctrine prevents this
Court from exercising personal jurisdiction over him.
III. Motion to Transfer Venue
In the alternative of dismissing the case, the Removing Defendants
request that the Court transfer this case to the Central District of
California pursuant to 28 U.S.C. § 1404 (a). In order to transfer a
case under § 1404(a), the Court must first have proper venue. See
TruServ Corp. v. Neff, 6 F. Supp.2d 790, 793 (N.D. Ill. 1998) (venue must
be proper in both transferor and transferee court to transfer pursuant to
§ 1404(a)). Under 28 U.S.C. § 1391, however, venue is not proper
here. The case was removed to this Court based upon a diversity of
citizenship. Section 1391 provides in relevant part that:
A civil action wherein jurisdiction is founded only on
diversity of citizenship may, except as otherwise
provided by law, be brought only in (1) a judicial
district where any defendant resides, if all the
defendants reside in the same State, (2) a judicial
district in which a substantial part of the events or
omissions giving rise to the claim occurred, or a
substantial part of property that is the subject of
the action is situated, or (3) a judicial district in
which any defendant is subject to personal
jurisdiction at the time the action is commenced, if
there is no district in which the action may otherwise
28 U.S.C. § 1391 (a). For purposes of venue, "a defendant that is a
corporation shall be deemed to reside in any judicial district in which
it is subject to personal jurisdiction at the time the action is
commenced." Id. § 1391(c). The Court must concluded that venue is not
proper here. Section
1391(a)(1) is not applicable because no defendant
resides in Illinois. As can be seen by the Court's personal jurisdiction
analysis, the overwhelming majority of the events did not occur in
Illinois, so § 1391(a)(2) does not provide for proper venue.
Finally, the action may be brought in the Central District of
California, so § 1391(a)(3) is not applicable. Because venue is not
proper in the Northern District of Illinois, the Court cannot transfer the
case under § 1404(a).
The Court will, however, transfer this case pursuant to
28 U.S.C. § 1406, which governs the dismissal or transfer of cases
where venue is improper. It is appropriate for this Court to consider a
transfer under this section sua sponte. See, e.g., Greenberg v. Miami
Children's Hosp. Research Inst., Inc., 208 F. Supp.2d 918, 928 (N.D.
Ill. 2002). This Court may, "if it be in the interest of justice,
transfer such case to any district or division in which it could have
been brought." 28 U.S.C. § 1406 (a). It is undisputed that venue
would be proper in the transferee district. The alleged wrongdoing
occurred in that forum and the property and defendants are located
there. Further, it is clear from the pleadings that the Central District
of California will have jurisdiction over all of the parties.
Transfer to the Central District of California under § 1406 is also
in the interest of justice. It is presumed that a transfer is in the
interest of justice. Spherion Corp. v. Cincinnati Fin. Corp.,
183 F. Supp.2d 1052, 1059-60 (N.D. Ill. 2002). Here, there is no reason
to hold otherwise. There is no allegation by the Removing Defendants that
Plaintiff was merely forum shopping and attempting to win the race to the
courthouse by filing in an improper forum. It appears that United
Financial filed the lawsuit in the Northern District of Illinois in good
faith. No purpose would be served by requiring United Financial to start
suit anew or even to simply refile its complaint in the Central District
This Court does not have personal jurisdiction over the Removing
Defendants. Instead of dismissing the action, the Court will transfer the
action to the Central District of California pursuant to
28 U.S.C. § 1406. The motions by the Removing Defendants and Kaddis
to dismiss for lack of personal jurisdiction or in the alternative to
transfer pursuant to § 1404(a) are therefore denied as moot.