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INTERLEASE AVIATION INVESTORS II v. VANGUARD AIRLINES

May 15, 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 defendants Pegasus Aviation, Inc.'s and Richard S. Wiley's: (1) motion to dismiss plaintiffs' amended complaint for lack of personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(2); (2) motion to dismiss plaintiffs' amended complaint for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3); and (3) motion to dismiss Count VIII of plaintiffs' amended complaint pursuant to Federal Rule of Civil Procedure 9(b). For the following reasons, the court denies defendants' motions.

I. BACKGROUND*fn1

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, representatives of Vanguard and defendant Seabury Group LLC ("Seabury") met with plaintiffs and informed them 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.

The representations made by defendants at the January 25 meeting led plaintiffs to enter several agreements in principle on March 8, 2001.*fn2 Under the terms of these agreements, plaintiffs agreed to defer Vanguard's obligations under the leases, and Vanguard agreed to 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 the terms of the agreements in principle.

Plaintiffs allege that from December 2000 through July 2001, Pegasus and Richard S. Wiley ("Wiley"), president of Pegasus, effectively gained control of Vanguard through various investment vehicles. Vanguard was experiencing financial difficulties and needed financing. Wiley and Pegasus were aware of Vanguard's leases with plaintiffi and, according to plaintiffs, made a modification of plaintiffs' leases a condition precedent to providing financing to Vanguard. Plaintiffs allege on information and belief that subsequent to March 8, 2001, while Pegasus and its affiliates were receiving security deposits, lease payments and parts support from Vanguard, Wiley and Pegasus induced Vanguard to breach the agreements in principle, the promissory motes, and the leases with plaintiffs. In May 2001, Pegasus, through Vanguard Acquisition Company ("VAC") a Pegasus subsidiary, loaned Vanguard $3.5 million in exchange for demand notes, which were applied to the purchase of common stock in July 2001. As a result, VAC became owner of 40.6% of Vanguard's common stock and 37.4% of Vanguard's voting stock.

On or about July 26, 2001, Wiley flew to Palwaukee, Illinois and met with Philip Coleman ("Coleman"), plaintiffs' representative. The parties discussed a proposal to restructure Vanguard's debt to plaintiffs. Wiley purported to be negotiating on behalf of Vanguard and on the basis of his and Pegasus's investment in Vanguard.*fn3 However, during this time period, Wiley was neither an officer or director of Vanguard. Wiley told Coleman that Vanguard would breach the agreements and plaintiffs had to accept a new proposal. On August 1, 2001, Wiley's proposal to restructure Vanguard's debt to plaintiffs was faxed to Coleman. Subsequent to Wiley's proposal, plaintiffs received restructuring proposals from David A. Rescino, vice-president of Vanguard. Vanguard's failure to comply with the agreements in principle, the promissory notes, and the leases with plaintiffs followed.

Plaintiffs brought this action by filing an eight-count complaint, which was subsequently amended. 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 conract against Vanguard. In Count IV, plaintiffs allege fraud against Vanguard and Seabury. In Count V, plaintiffs allege negligent misrepresentation against Seabury. 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 Pegasus and Wiley have filed a motion to dismiss for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2) ("Rule 12(b)(2)") and for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3) ("Rule 12(b)(3)"). Defendants also have moved to dismiss Count VIII pursuant to Federal Rule of Civil Procedure 9(b) ("Rule 9(b)").*fn4

II. DISCUSSION

A. Motion to Dismiss For Lack of Personal Jurisdiction 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 Cas. 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

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 Cas. 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.

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 protection 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., 245 F. Supp.2d 884, 891-92 (N.D.Ill. Oct. 18, 2002) (condensing personal jurisdiction analysis to a single federal due process inquiry).

In this case, the parties make no arguments regarding whether personal jurisdiction would be "fair just, and reasonable" under the Illinois Constitution. Rather, they dispute whether personal jurisdiction would comport with federal due process requirements. Thus, 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 the 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).

Under the Constitution of the United States, 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 713 (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. In this case, defendants argue neither general nor specific ...


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