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AMERICAN TOP ENGLISH, INC. v. GOLDEN GATE CAPITAL

February 23, 2004.

AMERICAN TOP ENGLISH, INC. Plaintiff,
v.
GOLDEN GATE CAPITAL, L.P, Defendant



The opinion of the court was delivered by: SUZANNE CONLON, District Judge

MEMORANDUM OPINION AND ORDER

In this diversity action, American Top English ("American") sues Golden Gate Capital ("Golden Gate") for breach of contract and violations of the Illinois Franchise Disclosure Act ("IFDA"), 815 ILCS 705/1, et seq., and Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et seq. Golden Gate responds with a motion to dismiss for lack of personal jurisdiction, improper venue and insufficiency of service of process pursuant to Fed.R.Civ.P. 12(b)(2), 12(b)(3) and 12(b)(5).

BACKGROUND

  American is an Illinois corporation headquartered in Chicago. Compl. at ¶ 3. Golden Gate is a private equity investment firm incorporated under Delaware law and headquartered in San Francisco, CA. Id. at ¶ 4. American is in the business of selling a popular videocassette language course called "Ingles Sin Barreras," — literally, "English Without Borders" — an instructional video that teaches English to Spanish speakers. Id. at ¶ 3. American does not produce the course itself, nor does it develop the course's content. Instead, it has the exclusive rights to distribute the video course in parts of Illinois, Indiana, Wisconsin and Arizona, pursuant Page 2 to a series of distribution agreements. Id. at ¶¶ 7-24. According to American, Golden Gate is a party to these contracts under an asset purchase agreement or assignment. This dispute centers on the rights and responsibilities flowing from these three contracts.

  The first agreement was executed in 1990 ("1990 agreement"). Id. at ¶¶ 7-12. Alejandro Daniel Itkin, American's president, negotiated the agreement with Hispanic-American Educational Materials, Inc. ("HAEM"), the original producer of "Ingles Sin Barreras." Id. Itkin subsequently assigned his interest in the agreement to American. Id. The 1990 agreement granted American the right to distribute the video course within the 312 and 708 area codes. Id. The agreement required American to advertise individually. However, HAEM pledged to advertise nationally. The 1990 agreement set forth a schedule for apportioning sales generated by HAEM's national advertising within American's exclusive distribution area. Id. The agreement required American to purchase sales kits and a certain amount of video courses to activate its distribution rights. Id. To retain these exclusive distribution rights, American was required to purchase additional video courses each month. Id. HAEM was obligated to ensure timely delivery of American's inventory needs. Sometime prior to May 1, 1994, HAEM's interest in the agreement was assigned to its successor, Hispaem of California, Inc. ("Hispaem"). Id. at Ex. B. According to American, Hispaem's rights in the agreement were eventually assigned to Golden Gate. In the complaint, American alleges Golden Gate breached the 1990 contract by selling video courses in Illinois, within American's exclusive distribution area.

  In 1994, American entered into a second distribution agreement ("1994 agreement") with Hispaem. Compl., Ex. B. The 1994 agreement granted American exclusive distribution rights in Arizona. Id. Like the 1990 agreement, the 1994 agreement required American to purchase a Page 3 minimum number of video courses each month, as well as an initial purchase of sales kits and video courses. Id. The 1994 agreement included a forum selection clause, which required the parties to file suit in California to enforce the agreement. Id. According to American, Hispaem's interest in the 1994 agreement has been assigned to Golden Gate. American alleges Golden Gate breached the agreement by competing with American in Arizona.

  In 1997, American and Hispaem executed a handwritten letter agreement ("1997 agreement") that modified the 1990 and 1994 agreements.*fn1 Compl. at ¶¶ 18-27. Importantly, the 1997 agreement enlarged the scope of American's distribution zone to include Wisconsin and Indiana. Id. Like the previous agreements, the 1997 agreement required American to purchase video courses and sales kits, as well as maintain certain sales levels to retain distribution rights. Id. According to American, Hispaem's rights and obligations under this agreement were assigned to Golden Gate. American alleges Golden Gate breached the 1997 agreement in two ways: Golden Gate improperly terminated the 1997 agreement on October 8, 2001; and, Golden Gate sold video courses in Indiana and Wisconsin in violation of American's exclusive distribution rights.

  Because Golden Gate was not an original party to these agreements, American has tendered evidence in an attempt to establish Golden Gate's liability as a successor to Hispaem. Chief among this documentation is a January 15, 2003 assignment agreement between Lexicon Page 4 Marketing International Limited ("LMI") and American. Pl's Opp., Ex. A. LMI is a portfolio company of Golden Gate. The assignment agreement establishes that Hispaem's rights in the three distribution agreements were succeeded by Lexicon Marketing Corporation ("LMC"). LMC then entered into an asset purchase agreement with LMI, whereby LMI purchased "substantially all of the assets" of LMC, including LMC's contract with American. Id. American consented to the assignment. Id. The assignment agreement is supported by an affidavit from American's president, Alejandro Itkin. Pl's Opp., Ex. L. Itkin attests that Golden Gate is Hispaem's successor in interest via the network of assignments discussed above. According to Itkin, Golden Gate has continued to fill American's needs under the distribution agreements by providing American with marketing materials, telephone leads and video courses. Id. at ¶ 20.

  DISCUSSION

 I. Personal Jurisdiction

  Golden Gate contends it is not subject to personal jurisdiction in Illinois because it is not the successor in interest to American's distribution contracts. According to Golden Gate the agreements are an insufficient basis to establish jurisdiction. American has the burden of demonstrating that this court has personal jurisdiction over Golden Gate. Purdue Research Foundation v, Sanofi-Synthelabo, S.A., 338 F.3d 773, 782-83 (7th Cir. 2003) (plaintiff must make out a prima facie case of personal jurisdiction); RAR, Inc. v. Turner Diesel, Ltd. 107 F.3d Page 5

  1272, 1276 (7th Cir. 1997)*fn2. In deciding a motion to dismiss for lack of personal jurisdiction, all well-pleaded jurisdictional allegations in the complaint are accepted as true unless controverted by affidavit. Willard v. Ingersoll-Rand Co., No. 03 C 4665, 2003 WL 22175582 (N.D.Ill.2003). Conflicts in affidavits or pleadings are resolved in American's favor; the court accepts unrefuted facts offered by defendants as true. Interlease Aviation Investors II (Aloha) L.L. C., et al. v. Vanguard Airlines, Inc., 262 F. Supp.2d 898, 905 (N.D.III. 2003).

  This court has jurisdiction over Golden Gate if an Illinois court would have jurisdiction. Fed.R.Civ.P. 4(k)(1)(A); Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 713 (7th Cir. 2002). An Illinois court may exercise jurisdiction over a nonresident defendant to the extent permitted by the Illinois and United States Constitutions. 735 ILCS 5/2-209(c); Hyatt Int'l Corp., 302 F.3d at 713. The allegations in the complaint and the evidence attached to American's opposition are insufficient to establish general jurisdiction over Golden Gate. Taken as true, they merely show that Golden Gate had a business relationship with an Illinois distributor and occasionally sold video tapes in Illinois. They do not demonstrate that Golden Gate had continuous and systematic contacts with Illinois. See RAR, Inc., 107 F.3d at 1277, citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984). Accordingly, American must establish that Golden Gate's contacts with Illinois gave rise to this lawsuit.

  To establish specific jurisdiction, American must demonstrate Golden Gate "purposefully established minimum contacts within the forum State." Burger King Corp, v. Rudzewicz, Page 6 471 U.S. 462, 476-77 (1985). Whether Golden Gate had sufficient minimum contacts with Illinois depends on whether it could "reasonably anticipate being haled into court" in Illinois. World-Wide Volkswagen Corp. v. Woodsen, 444 U.S. 286, 297 (1980). These contacts may not be fortuitous or attenuated. Instead, this requirement is satisfied when the defendant purposefully ...


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