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BIRNBERG v. MILK STREET RESIDENTIAL ASSOC.

January 17, 2003

CARL BIRNBERG AND JACOB MOSKOVIC, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
MILK STREET RESIDENTIAL ASSOCIATES LIMITED PARTNERSHIP, LEND LEASE REAL ESTATE INVESTMENTS, INC., BOSTON FINANCIAL TECHNOLOGY GROUP INC., LAKE MICHIGAN ASSOCIATES, LLC, LMA GP LLC, CLARK ENTERPRISES, INC. AND CLARK ONTERIE, L.L.C, DEFENDANTS. CARL BIRNBERG AND JACOB MOSKOVIC, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS, V. BOSTON FINANCIAL GROUP, LIMITED PARTNERSHIP, AND BOSTON FINANCIAL GROUP, INC, DEFENDANTS.



The opinion of the court was delivered by: Blanche M. Manning, United States District Judge

MEMORANDUM AND ORDER

Plaintiffs Carl Birnberg and Jacob Moskovic brought the instant diversity actions, on behalf' of' themselves and a proposed class, for breach of fiduciary duty, breach of contract, breach of implied covenant of good faith and fair dealing, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, intentional interference with contractual relations, fraud, and negligent misrepresentation against: (1) Milk Street Residential Associates Limited Partnership ("Milk Street"), a Massachusetts limited partnership; (2) Lend Lease Real Estate Investments, Inc. ("Lend Lease"), a Delaware corporation; (3) Boston Financial Technology Group, Inc. ("BFTGI"), a Massachusetts corporation; (4) Lake Michigan Associates LEC ("bake Michigan"), a Delaware limited liability company; (5) LMA GP LLC ("LMA"), a Delaware limited liability company, (6) Clark Enterprises, Inc. ("Clark Enterprises"), a Maryland corporation; (7) Clark Onterie, LLC ("Clark Onterie"), a Maryland corporation; (8) Boston Financial Group, Limited Partnership ("BFGLP"), a Massachusetts limited partnership; and (9) Boston Financial Group, Inc. ("BFGI"), a Massachusetts corporation.

The instant matter comes before the Court on Defendants BFGI, BFTGI, Clark Enterprises, and Clark Onterie's Motions to Dismiss Under Rule 12(b)(2) For Lack of Jurisdiction [36-1 and 9-1] and Lend Lease, BFTGI, BFGI, BFGLP, Lake Michigan, LMA, Clark Enterprises, and Clark Onterie's Motions to Dismiss Under Rule 12(b)(6) For Failure to State a Claim [37-1, 36-1, 9-1, and 7-1].*fn1

For the reasons that follow, the Rule 12(b)(2) motion is GRANTED as to BFTGI and DENIED with regard to BFGI, Clark Enterprises, and Clark Onterie, while the Rule 12(b)(6) motion is GRANTED in part and DENIED in part.

BACKGROUND*fn2

This matter stems from a partnership dispute arising out of the Franklin Building Associates Limited Partnership ("the Franklin Partnership"). Plaintiffs, two of the limited partners, who reside in Illinois and Minnesota, brought this action against the general partners and several companies allegedly affiliated with the general partners.

The Franklin Partnership was formed by BFTGI in 1984 to own units in Onterie Associates, an Illinois limited partnership, which was created to own and operate the Onterie Center, a 60 story residential and commercial building in Chicago, Illinois. Plaintiffs were among 174 limited partners who bought an interest in the Franklin Partnership. Defendant Milk Street was the general partner of the Franklin Partnership from 1984 until December of 1999.

Unfortunately, the Onterie Center, and thus the Franklin Partnership, was not a financial success, and as a result, the Onterie Center defaulted on one of its loans and the limited partners did not receive any return on their investments.

As a result of the poor financial condition of the Onterie Center, Plaintiffs allege that Defendants created a scheme to unlawfully enrich themselves at the expense of the limited partners. On February 23, 1999, Defendants mailed the limited partners a memorandum outlining a plan to acquire the limited partners' interests and substitute LMA for Milk Street as the general partner. Plaintiffs alleged that this memorandum was "false and misleading" in that it: (1) misrepresented Onterie's value in order to induce the Limited Partners to grant their consents; (2) failed to disclose pervasive conflicts of interest which were part of the buy-out scheme; and (3) left out pertinent and fundamental information which Defendants were required to disclose.

As a result of the February 23rd memorandum and other actions by Defendants, Plaintiffs allege that Defendants were able to purchase the limited partners' interests in the Franklin Partnership. Plaintiffs allege that Defendants breached their fiduciary duty to the limited partners, breached the Franklin Partnership agreement, breached the implied covenant of good faith and fair dealing, violated the Illinois Consumer Fraud and Deceptive Business Practices Act, intentionally interfered with the limited partners' contractual relations, defrauded the limited partners, and made several negligent misrepresentations in offering to buy the limited partners' interests.

After taking limited discovery on jurisdictional issues, Defendants moved to dismiss for lack of personal jurisdiction, pursuant to Rule 12(b)(2), and for failure to state a claim, under Rule 12(b)(6). The Court will discuss each of these motions in turn.

ANALYSIS

I. Motion to Dismiss for Lack of Personal Jurisdiction

In ruling on a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, the court may consider matters outside the pleadings, such as affidavits and other materials submitted by the parties. O'Hare Int'l Bank v. Hampton, 437 F.2d 1173, 1176 (7th Cir. 1971). The plaintiffs bear the burden of establishing personal jurisdiction by a preponderance of the evidence. Turnock v. Cope, 816 F.2d 332, 333 (7th Cir. 1987). The court must resolve any factual disputes in the plaintiffs' favor, and accept the allegations in the plaintiffs' complaints as true only to the extent that they are not controverted by other evidence in the record. Id. The court must also accept uncontested jurisdictional facts presented by the defendants as true. Connolly v. Samuelson, 613 F. Supp. 109, 111 (N.D. Ill. 1985).

A federal court sitting in diversity has personal jurisdiction over nonresident defendants only if jurisdiction would be proper in the state in which the federal court sits. Michael J. Neuman & Assocs., Ltd. v. Florabelle Flowers, Inc., 15 F.3d 721, 724 (7th Cir. 1994). The Illinois long-arm statute contains a "catch-all" provision that allows Illinois courts to assert personal jurisdiction to the maximum extent permitted by the Illinois and United States Constitutions. 735 ILCS 5/2-209(c).*fn3 Thus, jurisdiction is coextensive with federal due process requirements. See RAR. Inc. v. Turner Diesel Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997). Therefore, to determine whether personal jurisdiction is proper, the court must examine whether personal jurisdiction comports with Illinois and federal due process guarantees. Id.

Unfortunately, Illinois courts "have given little guidance as to how state due process protection differs from federal protection in the context of personal jurisdiction." Id. As a general rule, "`jurisdiction [under the Illinois constitution] is to he asserted only when it is fair, just, and reasonable . . . considering the quality and nature of the defendant's acts which occur in Illinois or which affect interests located in Illinois.'" Id. (quoting Rollins v. Ellwood, 565 N.E.2d 1302, 1316 (Ill. 1990)). Without specific guidance from Illinois courts, federal courts sitting in diversity in Illinois focus on federal due process in determining if Illinois due process guarantees are satisfied, See Mors v. Williams, 791 F. Supp. 739, 743 (N.D. Ill. 1992). Consequently, absent a clear indication that exercise of jurisdiction here violates the Illinois Constitution, this Court will rely on its federal analysis of jurisdiction to determine if personal jurisdiction comports with Illinois due process.

To assert personal jurisdiction consistent with federal due process, the defendants must have: (A) "certain minimum contacts with the forum state" such that (B) the maintenance of the suit does not offend "traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

The court's assessment of minimum contacts depends on whether "general" or "specific" jurisdiction is at issue. RAR 107 F.3d at 1277. Specific jurisdiction refers to jurisdiction over a defendant in a suit "arising out of or related to the defendant's contacts with the forum." Id. The court may exercise specific jurisdiction over defendants if they "purposefully established minimum contacts within the forum state" and those contacts "make personal jurisdiction fair and reasonable under the circumstances." Id., In examining a defendant's contacts with a particular state, the court must determine whether the defendant "purposefully availed itself of the privilege of conducting activities" in the forum state so that it "should reasonably anticipate being haled into court there." Id. In other words, the focus of the court's inquiry must be on the "relationship among the defendant, the forum, and the litigation." Heritage House Rests., Inc. v. Cont'l Funding Group. Inc., 906 F.2d 276, 283 (7th Cir. 1990). The main factor in specific jurisdiction analysis is foreseeability — was it reasonably foreseeable to the defendant that its action could result in litigation in the state in question. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472-74 (1985). Contacts that are "random, fortuitous, or attenuated" are not sufficient to establish that a state's exercise of personal jurisdiction over the defendant was foreseeable. Heritage House, 906 F, 2d at 283. Moreover, in examining the contacts in a specific jurisdiction analysis, the court cannot "simply aggregate all of the defendant's contacts with the state — no matter how similar in terms of geography, time, or substance." RAR, 107 F.3d at 1277.

In contrast to specific jurisdiction, general jurisdiction is applicable when the lawsuit neither arose nor was related to the defendant's contacts with forum state. Id. Such jurisdiction is permitted only where the defendant has "continuous and systematic general business contacts" with the state. Id. The general jurisdiction standard is "a fairly high standard requiring a great amount of contacts." Jamik, Inc. v. Days Inn of Mount Laurel, 74 F. Supp.2d 818, 822 (N.D. Ill. 1999), Factors courts examine in determining whether general jurisdiction exist include: (1) whether and to what extent the defendant conducts business in the forum state; (2) whether the defendant maintains an office or employees within the forum state; (3) whether the defendant sends agents into the forum state to conduct business; (4) whether the defendant advertises or solicits business in the forum state; and (5) whether the defendant has designated an agent for service of process in the forum state. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416 (1984).

If the court finds that it has either specific or general jurisdiction, the court must still ensure that the maintenance of the suit does not offend "traditional notions of fair play and substantial justice." Int'l Shoe Co., 326 U.S. at 316. Under this determination, the court examines: (1) the interest of the state in providing a forum to the plaintiff (2) the interest of the state in regulating the activity involved; (3) the burden of defense in the forum on the defendant; (4) the relative burden of prosecution elsewhere on the plaintiff, (5) the extent to which the claim is related to the defendant's local activities; and (6) the avoidance of a multiplicity of suits on conflicting adjudications. See Asahi Metal Inds. Co. v. Super. Ct. of Cal., 480 U.S. 102, 115 (1987); Burger King, 471 U.S. at 472-73, 476-77. Because no one factor is dispositive, this Court must balance all of the factors. Euromarket Designs, Inc. v. Crate & Barrel Ltd., 96 F. Supp.2d 824, 840 (N.D. Ill. 2000). However, the most important factors to consider are the interests of the forum and the relative convenience of the defendant in litigating in that forum. Kohler Co. v. Kohler Int'l, Ltd., 196 F. Supp.2d 690. 700 (N.D. Ill. 2002). It is well-settled, however, that a party that has directed its activities at the forum state bears the burden of presenting a "compelling case" that these other considerations make jurisdiction in the forum unreasonable, Burger King, 471 U.S. at 477.

Here, BFTGI, BFGI, Clark Enterprises, and Clark Onterie contend that Plaintiffs "cannot demonstrate that personal jurisdiction is satisfied under either the general jurisdiction or specific jurisdiction standard." The Court will thus examine whether it has jurisdiction over each of these Defendants.

A. Boston Financial Technology Group, Inc.

BFTGI has presented evidence showing that on March 31, 1986, it changed its name to BFGI and ceased to exist as a business entity. See Gladstone Decl. at 2 (Def. BFGI's Mot, to Dismiss, Ex, A); Articles of Amendment (Id., Ex. B) (certificate stating name change). Because Plaintiffs have not contested this assertion, the Court accepts this fact as true for the purposes of this motion. Connolly, 613 F. Supp. at 111. Therefore, because the relevant time period regarding the dispute over the Franklin Partnership stems from January 1, 1997 to December 21, 2001 see Birnberg v. Milk Street, 2002 WL 1162848, at *6 (N.D. Ill. May 24, 2002), this Court finds that BFTGI did not have minimum contacts with Illinois during the relevant time period, and therefore, the Court GRANTS BFTGI's Motion to Dismiss Under Rule 12(b)(2) for Lack of Jurisdiction.

B. Boston Financial Group, Inc.

Plaintiffs contend that a number of mailings by BFGI to the limited partners, many of whom lived in Illinois, are sufficient contacts to enable this Court to assert jurisdiction over BFGI Before discussing these mailings, however, the Court will examine whether documents mailed to residents of Illinois satisfy the minimum contacts requirement.

Generally, mail from a foreign defendant to individuals within the forum state is insufficient by itself to provide a basis forte exercise of personal jurisdiction. Greenberg v. Miami Children's Hosp. Research Inst., Inc., 208 F. Supp.2d 918, 926 (N.D. Ill. 2002). Where, however, the communication constitutes a "tortious act," it is sufficient to establish minimum contacts, See Heritage House Restaurants, Inc. v. Continental Funding Group. Inc., 906 F.2d 276, 282 (7th Cir. 1990). The Illinois long-arm statute provides in relevant part that:

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 . . . to the jurisdiction of the courts of this State as to any cause of action arising from the doing of any such acts: (2) The commission of a tortious act within this State.
735 ILCS 5/2-209(a)(2), Under section 2-209(a)(2), "a single tortious act occurring in Illinois will establish jurisdiction in Illinois, even though the defendant has no other contact in Illinois and has never been to Illinois." Mergenthaler Linotype Co. v. Leonard Storch Enter, Inc., 383 N.E.2d 1379, 1384 (Ill.App. Ct. 1978). Courts have broadly construed the term "tortious act" to include acts beyond those which "create common law liability" to include "any act that constitutes a breach of duty to another imposed by law." Vlasak v. Rapid Collection Sys., Inc., 962 F. Supp. 1096, 1100 (N.D. Ill. 1997). See also Ohio-Sealy Mattress Mfg. Co. v. Kaplan, 429 F. Supp. 139, 140 (N.D. Ill. 1977) ("[t]he word `tortious' . . . is not restricted to the technical definition of a tort, but also includes any act committed within the state which involves a breach of duty to another and makes the actor liable for damages").

Applying the above principles, courts have held that mailings by non-resident defendants which constitute a tort and are sent to Illinois residents and affect interests in Illinois are sufficient to confer jurisdiction over the non-resident defendant under section 2-209. See Cross v. Simons, 729 F. Supp. 588. 592 (N.D. Ill. 1989); McClub Serv., Inc. v. Stovall, 714 F. Supp. 370, 373 (N.D. Ill. 1989). In McClub 714 F. Supp. at 371, in a diversity action against a Texas defendant for breach of contract, fraud, and fraudulent inducement, the defendants moved to dismiss for lack of personal jurisdiction based on the wounds that its only contact with Illinois was a few telephone calls and mailings to the plaintiff, an Illinois resident, Applying Illinois law, the court held that "the mailing of . . . messages into Illinois that constitutes part of the tortious conduct, coupled with an intent to affect Illinois interests, satisfies the requirements of [section 2-209(a)(2)]." Id. Denying the motion, the court found that the plaintiff if met requirements of section 2-209(a)(2) by alleging that the tortious conduct consisted of mailing the fraudulent statements into Illinois, which were intended to and did result in economic injury to Illinois residents. Id.

With these factors in mind, the Court now examines the mailings which Plaintiffs contend establish personal jurisdiction in Illinois under section 2-209. On February 23, 1999, the limited partners received a memorandum in the mail ("the February Memorandum") which proposed a buy-out of the Franklin Partnership whereby LMA would replace Milk Street as the Franklin Partnership's general partner, acquire the limited partners' interests, and ultimately acquire the Onterie Center. The memorandum sought the limited partners' written consent for the proposed acquisition. Enclosed with the memorandum were a consent, proxy, special power of attorney, a certificate of non-foreign status, and a release for LMA and Milk Street (which would be signed only if the above transactions were completed).

The February Memorandum listed BFGI as an attorney for the Franklin Partnership and included a power or attorney which stated that the signee

irrevocably constitutes and appoints each of the Attorneys, in each case with full power of substitution, the true and lawful attorney-in-fact of the Principal, in his name, place, and stead, to make, execute, consent to, swear to, acknowledge, publish, record and file: All such instruments as the Attorneys or any of them may deem necessary or desirable to carry out the provisions of the sale, as discussed in the Memorandum, in accordance with its terms.
In support of its contention that BFGI was one of the entities which mailed the February Memorandum, Plaintiffs point to the Cooperation Agreement of May 25, 1999, which was signed by Milk Street, BFGI, BFTGI, and LMA. (Pls'. Mem. in Opp'n, Ex. F.) The Cooperation Agreement states that "BFGI, as successor to [BFTGI], has certain rights pursuant to the Second Amended and Restated Agreement and Certificate of Limited Partnership of Onterie." Paragraph five states that:
BFGI hereby represents that it sent the [February] Memorandum to all Investor Limited Partners in Franklin of record as of the dates of the three documents constituting the [February] Memorandum and received the document entitled Consent, Power of Attorney and Proxy from Investor Limited Partners in Franklin holding more than sixty-eight percent of the Investor Limited Partner interests in Franklin.
Based on this document, it would appear that BFGI sent out the allegedly deceptive and fraudulent February Memorandum and that it received the documents enclosed therein from the limited partners.*fn4

To rebut the contention that BFGI mailed the February Memorandum to the limited partners, BFGI relies on the deposition testimony of Michael Gladstone, former vice-president of BFGI and a limited partner of BFGLP. (See Defs' Reply. Ex. D.) According to Gladstone, by 1992, BFGI "pretty much ceased to operate as an operating company" because "virtually" all of its assets, rights, and responsibilities were transferred to BFGLP for tax purposes. (Id. at 15, 20-21.) After 1992, BFGLP "became our operating entity" and BFGI's "primary purpose was to serve as general partner of a couple of real estate limited partnerships." (Id. at 16-17.) Because BFGI "was not an operating entity at the time," Gladstone testified that it was not involved in the buy-out of the limited partners in 1998. (Id. at 57.) Gladstone stated that the reference to BFGI in the Cooperation Agreement was "careless on our part in preparing the document. . . . When this document was being drafted, we were probably not all that focused on what entity was referred to in Paragraph 5. We were merely trying to make the representation that the investor memos had been sent to all limited partners, and we were not focused on the abbreviation BFGI." (Id. at 88.) Gladstone Further asserted that the reference to "Boston Financial" in the various other correspondences mailed to the Limited Partners actually referred to BFGLP not BFGI. (Id. at 60, 63, 65.) Consequently, relying on Gladstone's deposition testimony, BFGI contends that "though this Court may have jurisdiction over [BFGLP] due process simply does not permit jurisdiction over [BFGI]."

Despite Mr. Gladstone's testimony, this Court finds that whether BFGI sent the February Memorandum is a factual dispute which this Court must resolve in Plaintiffs' favor. Turnock, 816 F.2d at 333. This finding is supported not only by the plain language of the February Memorandum and the Cooperation Agreement, but by the Fact that Mr. Gladstone signed the Cooperation Agreement on behalf of BFGI. Mr. Gladstone testified that BFGI "pretty much" ceased to operate aller 1992, If, however, BFGI, was not an operating entity after 1992, then it is unclear why Mr. Gladstone would have signed the Cooperation Agreement on its behalf on May 25, 1999. Therefore, for purposes of determining only whether this Court can assert jurisdiction over BFGI at this time, this Court finds that the February Memorandum was mailed by BFGI.

Even though Plaintiffs have established that BFGI mailed the February Memorandum to Illinois, to establish jurisdiction under section 2-209(a)(2), Plaintiff must still show that the mailing of the February Memorandum constituted a tort which was intended to and did cause injury to an Illinois resident. Plaintiffs allege that Defendants devised a plan to fraudulently buy-out the limited partners. As part of this plan, BFGI allegedly sent the February Memorandum which was "false and misleading" in that it: (1) "misrepresented Onterie's value in order to induce the Limited Partners to grant their consents"; (2) failed to disclose "pervasive conflicts of interest" which were part of the buy-out scheme; and (3) left out pertinent and fundamental information which Defendants were required to disclose. As a result of the misrepresentations in the February Memorandum, Plaintiff allege that Defendants improperly acquired the limited partners' interests "for far less than their true value" and caused the limited partners to unnecessarily incur "huge tax liabilities."

Consequently, for the purposes of this motion, the Court finds that the Complaint sufficiently alleges that the February Memorandum was mailed as to Illinois residents, constituted a "tortious act," and caused injuries to Illinois residents. The Court thus ...


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