United States District Court, N.D. Illinois
February 3, 2004.
PETER E. WEYENT, Plaintiff
VERTICAL NETWORKS, INC., a California Corporation; and ALAN FRASER, a California Resident, Defendants
The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff, Peter E. Weyent, filed suit against Defendants, Vertical
Networks, Inc. ("Vertical Networks") and Alan Fraser, in connection with
a breach of an employment contract. Now before the Court is Eraser's
Motion to Dismiss Counts VI and VII of Plaintiff's Amended Complaint,
pursuant to Federal Rule of Civil Procedure 12(b)(2). For the reasons
that follow, that motion is denied.
Plaintiff has the burden of establishing a prima facie case of
personal jurisdiction, See Steel Warehouse of Wisc., Inc. v.
Leach, 154 F.3d 712, 714 (7th Cir. 1998). When deciding whether the
plaintiff has made a necessary showing, a court can look to affidavits
and exhibits submitted by each party. Turnock v. Cope, 816 F.2d 332,
333 (7th Cir. 1987). When determining whether the plaintiff has met
the burden of establishing a prima facie showing of
jurisdiction, jurisdictional allegations in the complaint are taken as
true, unless controverted by the
defendant's affidavits or exhibits. The remaining facts come from
the declarations and exhibits submitted by the parties. All factual
disputes must be resolved in favor of the plaintiff.
In diversity actions, a federal court has personal jurisdiction over a
non-resident defendant only if a court of the state in which the federal
court sits would have personal jurisdiction. Dehmlow v. Austin
Fireworks, 963 F.2d 941, 945 (7th Cir. 1992) (citation omitted). A
determination of whether an Illinois court would have jurisdiction
requires an examination of three sources of law: "(1) state statutory
law, (2) state constitutional law, and (3) federal constitutional law."
RAR, Inc. v. Turner Diesel Ltd., 107 F.3d 1272, 1276 (7th Cir.
Under Illinois law, a court can have personal jurisdiction over a
non-resident via the state's long-arm statute. 735 ILCS § 5/2-209.
The statute states that an Illinois court may exercise jurisdiction on
any basis permitted by the state or federal constitution. 735 ILCS §
5/2-209(c). Therefore, the statute authorizes the exercise of personal
jurisdiction by the Illinois courts to the fullest constitutional limit;
and the statutory analysis collapses into a two-prong analysis: one based
on the Illinois Constitution, and one based on the United States
Constitution. RAR, 107 F.3d. at 1276.
"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. The Due Process Clause of
the United States Constitution permits an Illinois court to exercise
jurisdiction over a non-resident defendant only if the defendant has
"certain minimum contacts with [the state] such that the maintenance of
the suit does not offend `traditional notions of fair play and
substantial justice. "`International Shoe Co. v. Washington,
326 U.S. 310, 316 (1945) (quoting
Milliken v. Meyer, 311 U.S. 457, 463 (1940)); Neuman
& Assoc. v. Florabelle Flowers, 15 F.3d 721, 725 (7th Cir.
Specific jurisdiction "refers to jurisdiction over a defendant in a
suit `arising out of or related to the defendant's contacts with the
forum.'" RAR, 107 F.3d at 1277 (quoting Helicopteros
Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408 (1984)). To
determine whether specific jurisdiction exists, a defendant must have
"purposefully established minimum contacts within [Illinois];" and those
contacts must make personal jurisdiction reasonable and fair under the
circumstances. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474
(1985) (Burger King). Defendant must have "purposely availed"
itself of the privilege of conducting activities within the forum state,
invoking the benefits and protections of its laws such that they would
"reasonably anticipate being haled into court there." Asahi-Metal
Indus. Co. v. Superior Court, 480 U.S. 102, 119(1987).
Plaintiff must satisfy two elements for specific jurisdiction: (1) the
plaintiff must show that the defendant is amenable to service of process;
and (2) the plaintiff must establish that haling the defendant into court
is consistent with the Fourteenth Amendment's due process clause.
LFG, LLC. v. Zapata Corp., 78 F. Supp.2d 731, 734 (N.D. Ill.
The facts, for the purposes of this motion, are as follows. Vertical
Networks is a California corporation with its principal place of business
in California. At all times relevant to this action, Fraser was the
President and Chief Executive Officer ("CEO") of Vertical Networks.
From March 1, 1999, until December 31, 2002, Weyent was employed by
Vertical Networks as a Regional Enterprise Manager. Weyent and Vertical
Networks entered into and
executed two employment contracts, which are at issue in this
action. Thereafter, Weyent performed the majority of his work in
Illinois, where Vertical Networks transacted business by selling its
products to Illinois businesses.
For each year of Weyent's employment, Vertical Networks prepared a
Sales Compensation Plan (the "Plan" or "Plans") for members of its sales
team. The Plans are a series of written documents that were formally
executed by a Vertical Networks representative and Weyent. The Plans
provided for a certain amount of additional compensation if Weyent
reached applicable revenue targets.
In 2001, Weyent secured a purchase order from an Illinois-based
company, Household Finance Corporation (the "Household Finance deal").
Pursuant to the terms of the 2001 Plan, Weyent was eligible to receive
increased compensation; but he was not paid the full amount due under the
2001 Plan. In 2002, Weyent secured another purchase order from Household
Finance Corporation. Pursuant to the terms of the 2002 Plan, Weyent was
eligible to receive increased compensation; but he was not paid the full
amount due under the 2002 Plan.
Fraser moved to dismiss Counts VI and VII in Weyent's Amended Complaint
for lack of personal jurisdiction. Weyent, who concedes that only the
specific jurisdiction analysis applies in this case, contends that
Fraser's conduct in breaching the alleged employment Plans are sufficient
minimum contacts with Illinois.
Weyent alleges that he reported directly to Fraser, President and CEO
of Vertical Networks, from August 2001 through January 2002 and that
Fraser was the person responsible at
Vertical Networks for making all decisions about Weyent's
compensation. Fraser was, thus, aware of Weyent's two employment
contracts with Vertical Networks and knew of Vertical Networks'
obligation to pay Weyent. Fraser, who was involved in negotiating
Weyent's 2001 compensation package by reviewing Weyent's salary, was also
involved in reviewing the implementation and interpretation of Weyent's
two compensation Plans.
In addition, Fraser held ultimate authority over the amounts Weyent
would be paid under each Plan. Specifically, Weyent alleges that Fraser
reviewed and authorized a payment to Weyent for the Household Finance
deal completed in 2001. According to Weyent, Fraser interfered with the
Plans by refusing to pay Weyent the amounts he was due under the Plans.
Finally, while the parties dispute whether Weyent was an Illinois
resident, at this stage, all factual disputes must be resolved in favor
of Weyent. Therefore, from March 1, 1999 through November 20, 2001,
Fraser resided in Illinois.
In litigations involving interstate contractual obligations, "parties
who `reach out beyond one state and create continuing relationships and
obligations with citizens of another state' are subject to regulation and
sanctions in the other State for the consequences of their activities."
Margulis v. Med. Parts Int'l, Inc., No. 98 C 0714, 1999 WL
183648, at * 3 (N.D. Ill. Mar. 25, 1999) (Margulis) (quoting
Burger King, 471 U.S. at 473). Moreover, as long as Fraser "is a
primary participant in an alleged wrongdoing directed at a forum state
resident, the `minimum contacts' test is met." Margulis, 1999 WL
183648, at * 4 (citing Calder v. Jones, 465 U.S. 783, 790
(1984)). However, an individual's contract with an out-of-state party
alone will not automatically satisfy the minimum contacts test in the
individual's home forum. Burger King, 471 U.S. at 478.
Here, for part of the period during Weyent's employment relationship
with Vertical Networks, he was an Illinois resident. During the period
Weyent was an Illinois resident, Fraser was alleged to be in a position
to review, implement, interpret, and retain final authority over Weyent's
employment compensation package under the Plans. Weyent has properly
alleged that Fraser was a primary participant in the alleged tortious
actions directed at an Illinois resident.
While Fraser contends that he did not learn of any payment dispute with
Weyent until 2003, Fraser authorized a payment to Weyent for the
Household Finance deal during 2001, This contact is enough to show that
Fraser reached out and incurred a continuing obligation, pursuant to the
employment Plans, with an Illinois resident. Fraser does not dispute that
the exercise of jurisdiction would not comport with fair play and
substantial justice. Accordingly, the minimum contacts test is satisfied;
and jurisdiction is proper under the federal constitution. Because
Illinois courts are authorized to exercise personal jurisdiction to the
fullest constitutional limit, jurisdiction is also proper under the
Illinois long-arm statute. See 735 ILCS § 5/2-209(c).
Fiduciary Shield Doctrine
Fraser also argues that exercise of jurisdiction would not be proper
because it would violate Illinois due process standards. Specifically,
Fraser claims that the "fiduciary shield doctrine" protects Fraser in his
role as a corporate agent. See, e.g., Rice v. Nova Biomedical
Corp., 38 F.3d 909, 912, (7th Cir. 1994) (Rice).
In response, Weyent argues the fiduciary shield doctrine does not apply
because Fraser's actions were discretionary. According to Weyent, he
directly reported to Fraser from August of 2001 through January 2002.
Fraser was aware of the employment Plans and was involved in reviewing
and implementing the Plans, In addition, Fraser held ultimate authority
amounts Weyent would be paid under each Plan. Specifically, Weyent
alleges that Fraser reviewed and authorized a payment to Weyent for the
Household Finance deal completed in 2001. According to Weyent, Fraser
interfered with the Plans by refusing to pay Weyent the amounts he was
due under the Plans.
The fiduciary shield 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 some other principal."
Rice, 38 F.3d at 912. The shield may be withdrawn if the
"employee has the power to decide what is being done and chooses to
commit the acts that subject him to long-arm jurisdiction." Brujis v.
Shaw, 876 F. Supp. 975, 978 (N.D. Ill. 1995) (Brujis);
see also Darovec Mktg. Group v. Bio-Genics, Inc., 42 F. Supp.2d 810,
819-20 (N.D. Ill.). However, in using the discretionary exception,
it must "not be unfair to exercise jurisdiction over someone acting in a
representative capacity when he was in a position to decide whether or
not to perform acts in Illinois." Brujis, 876 F. Supp. at 979,
In this case, it has been alleged that Fraser had discretion to
determine to review and authorize payments to Weyent, pursuant to the
terms of the employment Plans. Fraser was also aware of the Plans and was
involved with the review and implementation of the Plans. Although Fraser
argues that none of his acts occurred in Illinois, the impact of a
discretionary decision to not follow the terms of the relevant employment
Plan would have impacted Weyent, who suffered the breach in Illinois.
Therefore, it would not be unfair to exercise jurisdiction over Fraser
when he was in a position to decide whether or not to authorize payments
to Weyent, who resided in Illinois.
For the foregoing reasons, Fraser's Motion to Dismiss Count VI and VII
of Plaintiff's Amended Complaint, pursuant to Federal Rule of Civil
Procedure 12(b)(2) is denied.
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