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INTERLEASE AVIATION INVESTORS II v. VANGUARD AIRLINES

April 1, 2003

INTERLEASE AVIATION INVESTORS II (ALOHA) L.L.C., AN ILLINOIS LIMITED LIABILITY COMPANY, INTERLEASE AVIATION INVESTORS III (TACA) L.L.C., AN IOWA LIMITED LIABILITY COMPANY, AND MIMI LEASING CORP., AN IOWA CORPORATION, PLAINTIFFS,
v.
VANGUARD AIRLINES, INC., A DELAWARE CORPORATION, PEGASUS AVIATION, INC., A FOREIGN CORPORATION, SEABURY GROUP, LLC, A NEW YORK LIMITED LIABILITY COMPANY, BRIAN GILLMAN, ELLEN N. ARTIST, DAVID A. RESCINO, THOMAS W. MAHR, AND RICHARD S. WILEY, DEFENDANTS.



The opinion of the court was delivered by: James H. Alesia, United States District Judge

MEMORANDUM OPINION AND ORDER

Currently before the court are: (1) a motion to dismiss the complaint for lack of personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(2), filed by defendants Brian S. Gillman, Ellen N. Artist, David A. Rescino, and Thomas W. Mahr and (2) a motion to dismiss Counts IV, V, and VIII, pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6), filed by defendants Seabury Group LLC, Brian S. Gillman, Ellen N. Artist, David A. Rescino, and Thomas W. Mahr. For the following reasons, the court: (1) grants the motion to dismiss the complaint for lack of personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(2), as to defendants Brian S. Giliman, Ellen N. Artist, David A. Rescino, and Thomas W. Mahr and (2) grants in part and denies in part the motion to dismiss pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6).

I. BACKGROUND

Defendant Vanguard Airlines, Inc. ("Vanguard") leased several aircraft from plaintiff Interlease Aviation Investors II (ALOHA) L.L.C. ("Interlease II"), plaintiff Interlease Aviation Investors III (TACA) L.L.C. ("Interlease III"), and plaintiff Mimi Leasing Corp. ("Mimi") (collectively, "plaintiffs"). Due to financial hardship, Vanguard later sought to modify the leases. As a result, Vanguard and plaintiffs entered into several agreements in principle, under the terms of which Vanguard issued promissory notes for the amounts of the deferred rents. Vanguard has not made the necessary payments on these promissory notes or on the leases.

On or about January 25, 2001, Brian S. Gillman ("Gillman"), a vice president and general counsel of Vanguard, and Ellen N. Artist ("Artist"), a managing director of defendant Seabury Group LLC ("Seabury"), met with plaintiffs in Chicago ("the Chicago meeting"). At that meeting, plaintiffs were informed that: (1) Vanguard was insolvent; (2) Vanguard had retained Seabury to provide financing expertise; (3) Vanguard had strategic plans to ensure reliability and reduce costs by converting its fleet to a different type of aircraft leased from Pegasus Aviation, Inc. ("Pegasus"); (4) Pegasus had committed to investing over $7.5 million in capital in Vanguard, $4 million of which had closed; (5) approximately $3 million of additional capital to be invested by Pegasus was contingent upon plaintiffs' deferral of Vanguard's obligations; (6) Vanguard's economic survival depended upon plaintiffs deferring Vanguard's lease obligations; and (7) as a result of Pegasus's investment in Vanguard, it would become a substantial Vanguard shareholder.

In reliance upon these representations, plaintiffs and Vanguard entered into several agreements in principle on March 8, 2001. Under the terms of these agreements, plaintiffs would defer Vanguard's obligations under the leases, and Vanguard would provide each plaintiff with a promissory note for the deferred lease payments. However, Vanguard has not made the necessary payments on the promissory notes or on the original leases. Additionally, Vanguard has breached other terms of the agreements in principle.

Plaintiffs allege that the representations made at the Chicago meeting were false and misleading. Plaintiffs further allege that Vanguard and Seabury failed to disclose additional material information regarding Vanguard's financial state and the nature of Vanguard's transactions with Seabury and Pegasus. For example, plaintiffs allege Artist and Gillman failed to fully disclose the extent of Seabury's financial interest in Vanguard, and that they failed to disclose that Vanguard and Seabury expected the fleet transition to adversely affect Vanguard in the short term. Plaintiffs also allege that Vanguard's financial condition and Pegasus's financial commitments were materially different than Vanguard and Seabury represented. In fact, rather than Pegasus becoming a substantial Vanguard shareholder, it became Vanguard's largest creditor. In addition, Vanguard and Seabury knew that Pegasus's funding would be insufficient to permit Vanguard to pay plaintiffs the amounts due on the notes.

Subsequent to the Chicago meeting, Thomas W. Mahr ("Mahr") replaced Artist as Seabury's representative in the negotiations. According to plaintiffs, Mahr was fully aware of the misleading representations made to plaintiffs, but failed to correct the plaintiffs' misapprehensions during his conversations with plaintiffs.

In July 2001, Pegasus's chief executive officer, Richard S. Wiley ("Wiley") traveled to Illinois to meet with plaintiffs' representative, Philip Coleman ("Coleman"). Wiley claimed to be negotiating on Vanguard's behalf and told Coleman that Vanguard would breach its commitments to plaintiffs unless plaintiffs accepted a new proposal. Wiley also sent a letter to Coleman on August 1, 2001, in which Wiley set forth a new proposal. David A. Rescino ("Rescino") the vice-president-finance of Vanguard since March 2001, sent two subsequent restructuring proposals to Coleman. On December 27, 2001, February 13, 2002, and June 24, 2002, Rescino wrote letters to both Mimi and Interlease II, informing them that Vanguard was terminating the leases.

As a result, plaintiffs brought this action by filing an eight-count complaint. In Count I, Mimi alleges breach of contract against Vanguard. In Count II, Interlease III alleges breach of contract against Vanguard. In Count III, Interlease II alleges breach of contract against Vanguard. In Count IV, plaintiffs allege fraud against defendants Vanguard, Seabury, Gillman, Artist, and Mahr. In Count V, plaintiffs allege negligent misrepresentation against defendants Seabury, Artist, and Mahr. In Count VI, plaintiffs allege tortious interference against Pegasus and Wiley. In Count VII, plaintiffs allege unjust enrichment against Pegasus and Wiley. In Count VIII, plaintiffs allege fraudulent scheme against all defendants.

This court has subject matter jurisdiction over the case pursuant to 28 U.S.C. § 1332 as complete diversity between the parties exists, and the amount in controversy exceeds $75,000.00. In response to this complaint, defendants Gillman, Artist, Rescino, and Mahr (collectively the "individual defendants") have filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(2) ("Rule 12(b)(2)") for lack of personal jurisdiction. Additionally, defendants Seabury, Gillman, Artist, Rescino, and Mahr have moved to dismiss Counts IV, V, and VIII pursuant to Federal Rules of Civil Procedure 9(b) ("Rule 9(b)") and 12(b)(6) ("Rule 12(b)(6)"). The court will address each motion in turn.

II. DISCUSSION

A. Individual defendants' motion to dismiss pursuant to Rule 12(b)(2)

1. Standard for Deciding a Rule 12(b)(2) Motion to Dismiss

On a motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of proving that personal jurisdiction exists. Cent. States, S.E. & S.W. Areas Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 939 (7th Cir. 2000). In deciding the motion to dismiss, the court may receive and consider affidavits from both parties. Greenberg v. Miami Children's Hosp. Research Inst., Inc., 208 F. Supp.2d 918, 922 (N.D.Ill. 2002) (citing Kontos v. United States Dep't of Labor, 826 F.2d 573, 576 (7th Cir. 1987)). Any conflicts in the pleadings and affidavits are to be resolved in the plaintiffs' favor, but the court accepts as true any facts contained in the defendants' affidavits that remain unrefuted by the plaintiffs. Cont'l Gas. Co. v. Marsh, No. 01 C 0160, 2002 WL 31870531, at *2 (N.D.Ill. Dec. 23, 2002) (citing RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997)).

2. Defendants' motion

The individual defendants Gillman, Artist, Rescino, and Mahr — none of whom reside in Illinois — argue that the court lacks personal jurisdiction over them. In response, plaintiffs contend that the court has specific jurisdiction over the individual defendants because they committed torts and transacted business in Illinois. Furthermore, plaintiffs argue that their claims against the individual defendants arise out of each defendant's contacts with Illinois.

In a case based upon diversity of citizenship, a federal district court sitting in Illinois has personal jurisdiction over a nonresident defendant only if an Illinois court would have jurisdiction. Netzky v. Fiedler, No. 00 C 4652, 2001 WL 521396, at *1 (N.D.Ill. May 15, 2001). For an Illinois court to have personal jurisdiction over a nonresident defendant, personal jurisdiction must be permitted by: (1) Illinois statutory law; (2) the Illinois Constitution; and (3) the Constitution of the United States. Cont'l Gas. Co., 2002 WL 31870531, at *4. With respect to Illinois statutory law, the Illinois long-arm statute now extends personal jurisdiction to the limit allowed under the Illinois Constitution and the Constitution of the United States. LaSalle Bank Nat'l Ass'n v. Epstein, No. 99 C 7820, 2000 WL 283072, at * 1 (N.D.Ill. Mar. 9, 2000) (citing RAR, Inc., 107 F.3d at 1276). "`Because the Illinois statute authorizes personal jurisdiction to the [federal] constitutional limits, the three inquiries . . . collapse into two constitutional inquiries — one state and one federal.'" Cont'l Cas. Co., 2002 WL 31870531, at *4 (quoting RAR, Inc., 107 F.3d at 1276). If jurisdiction is improper under either the Illinois Constitution or the Constitution of the United States, the court cannot exercise jurisdiction over the defendant. Id.

a. Illinois Constitutional Limits

The Illinois Supreme Court has held that, under the Illinois Constitution's guarantee of due process, jurisdiction is to be "asserted only when it is fair, just, and reasonable to require a nonresident defendant to defend an action in Illinois, considering the quality and nature of the defendant's acts which occur in Illinois or which affect interests located in Illinois." Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 715 (7th Cir. 2002) (quoting Rollins v. Ellwood, 565 N.E.2d 1302, 1316 (Ill. 1990)). The Seventh Circuit has stated the Illinois courts "have given little guidance as to how state due process differs from federal protection in the context of personal jurisdiction." RAR, 107 F.3d at 1276. Furthermore, the Seventh Circuit has recently found that "there is no operative difference between the limits imposed by the Illinois Constitution and the federal limitations on personal jurisdiction." Hyatt, 302 F.3d at 715 (citing RAR, 107 F.3d at 1276; Klump v. Duffus, 71 F.3d 1368, 1371 n. 4 (7th Cir. 1995)). Additionally, the Seventh Circuit has noted that in no case since the Illinois Supreme Court's 1990 decision in Rollins has an Illinois court found federal due process to allow personal jurisdiction while Illinois due process prohibited it. Id. Since those statements by the Seventh Circuit, other courts in the circuit have bypassed the Illinois due process analysis and conducted only a federal personal jurisdiction analysis. See Cont'l Cas. Co., 2002 WL 31870531, at *4 (conducting only a federal due process analysis because the parties did not present any evidence to suggest that the outcome would be otherwise under state law); United Fin. Mortgage Corp. v. Bayshores Funding Corp., No. 02 C 5260, 2002 WL 31356408, at *4 (N.D.Ill. Oct. 18, 2002) (condensing personal jurisdiction analysis to a single federal due process inquiry).

In the instant case, the parties raise no argument regarding whether personal jurisdiction would be "fair, just, and reasonable" under the Illinois Constitution. Instead, they dispute only whether personal jurisdiction would comport with federal due process requirements. Therefore, the court will proceed to the federal due process inquiry. See Mac Funding Corp. v. N.E. Impressions, Inc., 215 F. Supp.2d 978, 980 (N.D.Ill. 2002) (proceeding directly to federal personal jurisdiction analysis where parties failed to address Illinois standards and court's own research revealed nothing that would indicate that Illinois law would lead to a different outcome than federal law).

b. Federal Constitutional Limits

The Due Process Clause of the Fourteenth Amendment limits a state court's power to assert personal jurisdiction over a nonresident defendant. RAR, 107 F.3d at 1277 (citation omitted). Federal due process requires that a nonresident defendant have certain minimum contacts with the forum state "such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" Hyatt, 302 F.3d at 716 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)) (additional citation omitted). This standard varies depending on whether the jurisdiction alleged is general or specific. RAR, 107 F.3d at 1277.

General jurisdiction exists in cases where a defendant has "continuous and systematic" business contacts with the forum state. Hyatt, 302 F.3d at 713. In contrast, in specific jurisdiction cases, the suit must "arise out of" or "be related to" the defendant's minimum contacts with the forum state. Id. at 716.

Here, plaintiffs allege no such "continuous and systematic" contacts by defendants with Illinois that could support the court's exercise of general personal jurisdiction. In fact, plaintiffs allege, "Defendants Seabury, Artist, Mahr, Gillman, and Rescino are subject to the jurisdiction of this Court because plaintiffs' causes of action arise from their transaction of business and commission of a tortious act within the State of Illinois." (Compl. at ΒΆ 15.) Additionally, all of plaintiffs' arguments that personal jurisdiction is proper in this case focus upon the individual defendants' isolated actions in Illinois with regard to this case. Furthermore, plaintiffs do not dispute the individual defendants' statements that they do not engage regularly in any activity in Illinois. Thus, the court finds that the individual defendants do not have continuous and systematic contacts with Illinois. Consequently, the court does not have general personal jurisdiction over the individual defendants. Therefore, the court will ...


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