United States District Court, N.D. Illinois
April 5, 2004.
GRAND VEHICLE WORKS HOLDINGS, CORPORATION, Plaintiff,
THOMAS FREY and RICHARD FISH, Defendants
The opinion of the court was delivered by: AMY J. ST. EVE, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Grand Vehicle Works Holdings Corporation ("Grand Vehicle")
filed a seven count complaint against Defendants Thomas Frey ("Frey") and
Richard Fish ("Fish") (collectively, "Defendants") alleging breach of
contract, tortious interference with contractual relations, breach of
fiduciary duty, and unfair competition. Defendants moved to dismiss the
complaint pursuant to Federal Rule of Civil Procedure 12(b)(2) for lack
of personal jurisdiction. For the reasons set forth below, Defendants'
motion is denied.
Grand Vehicle is a Delaware limited liability corporation with its
principal place of business in Highland Park, Illinois. (R. 1-1, Compl.
¶ 2.) Grand Vehicle develops, markets, and sells products and
services related to the motor home industry. (Id. ¶ 8.)
Workhorse Custom Chassis ("Workhorse") is a subsidiary of Grand Vehicle
and has its principal place of business in Union City, Indiana,
(Id.) Workhorse manufactures strip chassis for the motor home
industry. (Id.) Defendants, both residents of Ohio, are former Workhorse employees who
worked in Workhorse's Union City, Indiana facility, (Id. ¶¶
3-4.) Frey served as President of Workhorse from June 1999 until January
2003, when he quit Workhorse to work for Universal Trailer Corporation
("Universal Trailer") in Cincinnati, Ohio. (Id. ¶ 10.)
Universal Trailer manufactures and sells trailers and motor homes,
(Id. ¶ 21.) Fish served as Workhorse's Vice President of
Marketing for Recreational Vehicles from October 2000 until August 2003,
when he also quit Workhorse to work for Universal Trailer. (Id.
Anthony Monda served as Workhorse's Director of Marketing from May 1999
until he left Workhorse in September 2003 to join Frey and Fish at
Universal Trailer. (Id. ¶ 25.) While the majority of
Workhorse employees were based in Union City, Indiana, Monda and several
other Workhorse employees worked in Highland Park, Illinois, (Andrew
Taitz Aff. ¶ 2.)
In May 2001, Grand Vehicle offered stock options to Defendants and
other key employees. (R. l-l, Compl. ¶ 16.) Defendants accepted the
offer and agreed to be bound by the Company's Stock Option Agreement,
(Id.) As a condition of their receipt of the stock options, Frey
and Fish each executed a Confidentiality and Non-Compete Agreement (the
"Frey Non-Compete Agreement" and the "Fish Non-Compete Agreement
associated with the Stock Option Agreement"), (Id. ¶ 17.)
Pursuant to these agreements, Defendants agreed to certain
post-employment restrictions in the event that they left Workhorse to
work for a competitor.*fn1 (Id. ¶ 1.)
In March 2002, Neville Dowell, a Grand Vehicle shareholder, agreed to
sell his Grand Vehicle stock to Fish. (Id. ¶ 18.) To consummate the
sale, Fish and Dowell executed a Share Purchase Agreement. (Id.)
Fish needed Grand Vehicle's consent before he could purchase the stock
from Dowell, (Id.) As a condition of Grand Vehicle's consent,
Grand Vehicle required Fish to execute an additional Confidentiality and
Non-Compete Agreement (the "Fish Non-Compete Agreement associated with
the Share Purchase Agreement") contemporaneously with the Share Purchase
Agreement, (Id.) The Share Purchase Agreement contained a forum
selection clause in which Fish agreed to submit to personal jurisdiction
in. Illinois for any disputes arising out of that agreement. (Share
Purchase Agreement ¶ 6(c).)
Grand Vehicle sued Defendants for a variety of claims arising out of
the Frey Non-Compete Agreement and both Fish Non-Compete Agreements.
Defendants argue that the Court lacks personal jurisdiction over them.
This is the issue currently before the Court.
When a defendant files a motion to dismiss for lack of personal
jurisdiction, the plaintiff bears the burden of demonstrating the
existence of personal jurisdiction over the defendant. RAR, Inc. v.
Turner Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997). The
plaintiff, however, "need only make out a prima facie case of
personal jurisdiction." Hyatt Int'l Corp. v. Coco, 302 F.3d 707,
715 (7th Cir. 2002). Accordingly, in determining whether personal
jurisdiction exists, "[t]he allegations in the complaint are to be taken
as true unless controverted by the defendants' affidavits; and any
conflicts in the affidavits are to be resolved in [the plaintiff's]
favor." Turnock v. Cope, 816 F.2d 332, 333 (7th Cir. 1987).
Because each count of a complaint is ordinarily a separate statement of a
claim, the plaintiff must establish that personal jurisdiction exists as
to each count. Beveridge v. Mid-West Mgmt., Inc., 78 F. Supp.2d 739,
744 (N.D. Ill. 1999). An Illinois federal court has personal jurisdiction over a nonresident
party "only if an Illinois state court could have such jurisdiction."
RAR, 107 F.3d at 1275. The Illinois long-arm statute permits the
Court to exercise personal jurisdiction over a party to the extent
allowed under federal due process.*fn2 See 735 Ill. Comp. Stat.
5/2-209(c); Dehmlow v. Austin Fireworks, 963 F.2d 941, 945 (7th
Cir. 1992). In addition, the Court must ensure that the due process
guarantees of the Illinois Constitution are satisfied before exercising
personal jurisdiction over a nonresident defendant. RAR, 107
F.3d at 1276; Jamik, Inc. v. Days Inn of Mount Laurel,
74 F. Supp.2d 818, 821 (N.D. Ill, 1999). Because the Seventh Circuit has held
that "there is no operative difference between the limits imposed by the
Illinois Constitution and the federal limitations on personal
jurisdiction," the Court will address a single due process inquiry.
Hyatt, 302 F.3d at 715; see also Janmark, Inc. v.
Reidy, 132 F.3d 1200, 1202 (7th Cir. 1997); Klump v.
Duffus, 71 F.3d 1368, 1371 n.4 (7th Cir. 1995).
Federal due process requires that the defendant have "certain minimum
contacts with [the state] such that the maintenance of the suit does not
offend `traditional notions of fair play and substantial justice,'"
RAR, 107 F.3d at 1277 (quoting International Shoe Co. v.
Washington, 326 U.S. 310, 316, 66 S. Ct, 154, 158 (1945)). The
minimum contacts standard varies depending on whether the plaintiff
asserts general or specific jurisdiction. This case involves specific jurisdiction.*fn3
Specific jurisdiction exists in cases "arising out of or related to the
defendant's contacts with the forum." Helicopteros Nacionales de
Columbia, S.A. v. Hall, 466 U.S. 408, 414 n.8, 104 S.Ct. 1868, 1872
n.8 (1984), In specific jurisdiction cases, a defendant's minimum
contacts with Illinois must "result from the actions by the defendant
himself that create a substantial connection with the forum state."
Burger King v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174,
2184 (1985) (citation omitted). The defendant's connection to the State
must be substantial enough that "he should reasonably anticipate being
haled into court there." World-Wide Volkswagen Corp. v. Woodson,
444 U.S. 286, 297, 100 S.Ct. 559, 567 (1980).
Because specific jurisdiction requires that the lawsuit "arise out of
or "be related to" a defendant's minimum contacts with the forum state,
RAR, 107 F.3d at 1277, the Court must determine whether this
lawsuit arises out of Defendants' contacts with Illinois in a manner
sufficient to warrant exercising personal jurisdiction over Defendants.
The Court concludes mat it does.
Grand Vehicle argues that the Court has personal jurisdiction over
Defendants under at least four subsections of the Illinois long-arm
statute. The statute provides in part:
[a]ny 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 Stale as to any cause of action arising
from the doing of any of the following such acts:
(1) The transaction of any business within this
State; (2) The commission of a tortious act within
this State; . . . (7) The making or performance
of any contract or promise substantially connected
with this State; . . . [or] (11) The breach of
any fiduciary duty within this Slate.
735 Ill. Comp. Stat. 5/2-209(a).
The parties focus on whether Defendants' contacts with Illinois provide
a sufficient basis for jurisdiction under one of the four above-mentioned
enumerated acts. The catch-all provision of section (c) of the Illinois
long-arm statute,*fn4 however, allows the Court to find personal
jurisdiction without reference to any of the specific acts enumerated in
section (a). See Mattsson v. Gerry Wood Prods. Co., No. 95 C
2314, 1996 WL 147921, at *7-8 (N.D. Ill. Mar. 28, 1996); Rao Design
Eng'g, Inc. v. Wisconsin Engraving Co., Inc., No. 96 C 3945, 1996 WL
535328, at *3-4 (N.D. Ill. Sept. 18, 1996), Accordingly, the Court need
not restrict its analysis to the specific enumerated bases of the
Nonetheless, the enumerated bases provide guidance regarding the
quality and nature of contacts that arc sufficient to satisfy due
process. It is therefore instructive to analyze Defendants' Illinois
contacts in light of the specific bases for personal jurisdiction
enumerated in subsection (a) of the Illinois long-arm statute. See
Mattson, 1996 WL 147921, at *7-8. In this case, the question whether
Defendants' contacts are sufficient to establish personal jurisdiction
under either the "tortious act" or "contractual relations" standard of
the Illinois long-arm statute provides guidance as to whether Defendants' activities constitute
minimum contacts sufficient to satisfy federal due process guarantees. As
noted, Grand Vehicle must establish personal jurisdiction as to each
count.*fn5 As to Counts IV-VII, personal jurisdiction exists in light of
the "tortious act" standard. As to Counts I-III, personal jurisdiction
exists in light of the "contractual relations" standard.
I. This Court Has Personal Jurisdiction Over Defendants As To
Counts IV-VII Because Grand Vehicle Alleged That Defendants Committed A
Tortious Act Within Illinois
A. Grand Vehicle Established Personal Jurisdiction As To The
Tortious Interference With Contractual Relations Counts
Tortious interference with contractual relations may subject a
nonresident to personal jurisdiction in Illinois under the state's
long-arm statute. 735 III. Comp. Stat. § 5/2-209(a)(2); Cleary v.
Sterenbuch, No. 01 C 5109, 2001 WL 1035285, at *2 (N.D. Ill. Sept.
10, 2001), A nonresident may be subject to personal jurisdiction in
Illinois even if the defendant committed the allegedly tortious acts
elsewhere. See Janmark, Inc. v. Reidy, 132 F.3d 1200, 1202-3
(7th Cir. 1997) ("the state in which the injury (and therefore the tort)
occurs may require the wrongdoer to answer for its deeds even if events
were put in train outside its borders"); ISI Int' l, Inc. v. Borden
Ladner Gervais, LLP, 256 F.3d 548, 551 (7th Cir. 2001), In Counts IV and V, Grand Vehicle alleges that Frey and Fish tortiously
interfered with Grand Vehicle's contractual relations with Tony Monda by
improperly influencing him to terminate his employment contract with
Grand Vehicle.*fn6 The parties dispute the events leading to Monda's
resignation. Fish's affidavit states that Monda called Fish and asked
Fish to "please take me with you." Fish further states that Monda called
Fish while Monda was at his home in Indiana and Fish was on vacation in
North Carolina. These statements conflict with Grand Vehicle CEO Andrew
Taitz's affidavit and the complaint's allegations that Fish called Monda
at Monda's Illinois office. While the parties dispute the events leading
to Monda's resignation and subsequent employment at Universal Trailer,
the Court resolves such disputes in Grand Vehicle's favor.
Hyatt, 302 F.3d at 712-13.
The essence of Grand Vehicle's claim is that Defendants' tortious
conduct led to the termination of Monda's employment contract, which
injured Grand Vehicle in Illinois. Defendants contend that this injury is
too attenuated because Workhorse Grand Vehicle's subsidiary
suffered the injury. Because Workhorse's principal place of
business is in Indiana, Defendants argue, there was no injury in
Illinois. Defendants' argument fails. First, Taitz's affidavit states
that Workhorse has significant business operations in Highland Park, and
that several key Workhorse employees are located there or maintain
offices there, including the CEO of Grand Vehicle and Workhorse, the
current president of Workhorse, and several other sales and marketing
employees. (Taitz Aff. 11 2.) When Workhorse lost Monda, its
Illinois-based Director of Marketing, it suffered injury not only at its headquarters in
Indiana but also at its Illinois operations in Highland Park, Illinois.
Second, Grand Vehicle explicitly contracted with Defendants to avoid this
very injury. The Frey Non-Compete Agreement and both Fish Non-Compete
Agreements contained the following non-solicitation provision:
Non-Solicitation: During the Term of
Non-Competition, Employee will not . . .
directly or indirectly, recruit or otherwise
solicit or induce any employee . . . of the
Company to terminated its employment or
arrangement with the Company . . . or establish
any relationship with the Employee or any of his
affiliates for any business purpose deemed
competitive with the business of the Company.
(Agreements, ¶ 3.) Thus, Defendants' allegedly tortious conduct
injured not only Workhorse's Indiana headquarters, hut also Workhorse's
Illinois operations and Grand Vehicle's Illinois headquarters.
B. Grand Vehicle Established Personal Jurisdiction As To The
Breach Of Fiduciary Duty And Unfair Competition Counts
For purposes of the Illinois long-arm statute, Illinois courts construe
the phrase "tortious act" broadly to encompass any act that involves a
breach of a duty owed to another and makes the person committing the act
liable to the other for damages. Vlasak v. Rapid Collection Sys.,
Inc., 962 F. Supp. 1096, 1100 (N.D. Ill. 1997); see also Estate
of Wrigley, 104 Ill. App.3d 1008, 433 N.E.2d 995, 1004(1982).
In Count VI, Grand Vehicle alleges that Frey and Fish breached their
fiduciary duties to Grand Vehicle, Defendants argue that Grand Vehicle
cannot establish a breach of fiduciary duly because Defendants owed no
duty to Grand Vehicle after they terminated their employment with Grand
Vehicle. But the questions whether Defendants actually had a fiduciary
duty to Grand Vehicle and whether they breached that duty arc not before
the Court. Grand Vehicle established a prima facie case o f personal jurisdiction as to Count
VI by alleging that Defendants had a fiduciary duty to Grand Vehicle and
that they breached that duty.
In Count VII, Grand Vehicle alleges that Frey and Fish engaged in
unfair competition against Grand Vehicle. Because Defendants do not
dispute whether personal jurisdiction exists as to this count, they
waived the argument that personal jurisdiction is improper as to Count
VII. In any event, Grand Vehicle's action for unfair competition clearly
arises directly out of Defendants' breach of fiduciary duty and tortious
interference with contractual relations. See Magnum Feeders, Inc. v.
Bloedorn, No. 95 C 2012, 1995 WL 743747, at *3 (N.D. Ill. Dec. 12,
Accordingly, Grand Vehicle has established that the Court has personal
jurisdiction over Defendants by virtue of the injury mat occurred in
Illinois as a result of Defendants' allegedly tortious conduct.
II. This Court Has Personal Jurisdiction Over Defendants As To
Counts I-III On The Basis Of Defendants' Contracts And Business
Transactions in Illinois
In a breach of contract case, "it is only the dealings between the
parties in regard to the disputed contract that arc relevant to minimum
contacts analysis." RAR, 107 F.3d at 1278. It is well-settled
that a nonresident defendant does not subject itself to personal
jurisdiction in Illinois simply by entering into a contract with an
Illinois resident. Burger King, 471 U.S. at 478, 105 S.Ct. at
2185. Instead, courts consider a number of factors to determine the
question of personal jurisdiction on the basis of contractual relations.
These factors include: who initialed the transaction, where the
negotiations were conducted, where the parties executed the contract, and
where the defendant would have performed the contract. See RAR,
107 F.3d at 1277. Applying these standards to this case, the Court finds that Defendants are
subject to personal jurisdiction in Illinois.
The key factors establishing jurisdiction are that the parties
negotiated the contracts at least in part in Illinois and that Defendants
agreed to perform the contracts at least in part in Illinois.
A. Defendants Do Not Dispute That The Parties Negotiated The
Agreements At Least In Part In Illinois
1. The Frey And Fish Stock Option Agreements
Grand Vehicle alleges that the parties negotiated the Frey Non-Compete
Agreement and the Fish Non-Compete Agreement associated with the Stock
Option Agreement at least in part in Illinois. Defendants frequently
traveled to the Highland Park office to attend meetings and perform other
management duties. (Taitz Aff. ¶¶ 5-6.) During at least some of those
business trips, Defendants discussed the terms of the Frey and Fish Stock
Option Agreements and the Fish Stock Purchase Agreement with Grand
Vehicle in Highland Park, Illinois. (Taitz Supplemental Aff, ¶ 3.)
2. The Fish Share Purchase Agreement
Similarly, Grand Vehicle alleges that the parties negotiated the Fish
Non-Compete Agreement associated with the Share Purchase Agreement at
least in part in Illinois, Defendants argue that other negotiations took
place outside of Illinois, but they do not dispute that Fish and Taitz
had several conversations in Highland Park, Illinois regarding Fish's
purchase of Dowell's shares. (Taitz Supplemental Aff. ¶ 8.)*fn7 B. The Fiduciary Shield Doctrine Does Not Apply
For the first time in their reply brief, Defendants argue that the
Court cannot consider Defendants' Illinois contacts in determining
personal jurisdiction because the fiduciary shield doctrine protects
them. Arguments raised for the first time on reply are waived.
Montalvo v. Park Ridge Police Dept., 170 F. Supp.2d 800, 803
(N.D. Ill. 2001), Accordingly, Defendants cannot rely on the fiduciary
Even if the Court were to consider this argument, it is unavailing
because the fiduciary shield doctrine does not apply in light of the
personal business exception. The fiduciary shield doctrine provides that
nonresidents who enter a state solely as a fiduciary for another may not
be sued in that state. ISI Int'l, 256 F.3d at 550. Two
exceptions to this doctrine exist: "(1) the shield is removed if the
individual's personal interests motivated his actions, and (2) the shield
generally does not apply when the individual's actions are
discretionary," Consumer Benefit Servs., Inc. v. Encore Mktg. Int'l,
Inc., No. 01 C 6985, 2002 WL 31427021, at *3 (N.D. Ill, Oct. 30,
2002). The "fiduciary shield is discretionary or equitable, rather than
an absolute entitlement," and is lost "if the employee's personal
interest motivated his actions." Id.
The fiduciary shield doctrine does not apply because Defendants'
personal interests motivated their actions, Defendants argue that they
never traveled to Highland Park to "specifically discuss the Stock Option
Agreements," and that "[t]o the extent that Taitz and Defendants
discussed the Stock Option Agreements while in Illinois, such discussions
were secondary to other [Grand Vehicle] business topics." (R. 18-1,
Defs.' Reply Mem. at 5 n.4.) Grand Vehicle alleges that Defendants
entered into the agreements for their own personal benefit. The Court
agrees. Defendants did not enter into the agreements on behalf of Grand
Vehicle, Rather, Defendants negotiated against Grand Vehicle to
secure terms that were most favorable to Defendants personally,*fn8
"[T]he shield is withdrawn if the agent was acting also (or instead) on
his own behalf to serve his personal interests," Budget Rent A Car
Corp. v. Crescent Ace Hardware, No. 03 C 0930, 2003 WL 21673932, at
*4 n.6 (N.D. Ill. July 16, 2003) (citation omitted).
C. Grand Vehicle Has Established That Defendants Agreed To At
Least Partially Perform The Contracts In Illinois
Grand Vehicle alleges that Defendants agreed to perform at least part
of their obligations under the agreements in Illinois, As noted, all of
the agreements at issue included a "Non-Solicitation" clause. Grand
Vehicle dearly was concerned that Defendants might lure away its key
employees from either its Indiana or Illinois office to
join Defendants in the event that they left Grand Vehicle to work for a
competitor. Defendants agreed to refrain from soliciting Grand Vehicle
employees based in Illinois, such as Monda. Thus, Grand Vehicle has
established that Defendants agreed to perform their obligations under the
agreement at least partially in Illinois.
Taking all allegations in Grand Vehicle's complaint as true, as the
Court must, the Court finds that Defendants' minimum contacts with
Illinois satisfy due process. The case arises out of Defendants' contacts
with Illinois, and Defendants' connections to Illinois through at least
its tortious conduct and its contractual relations are substantial enough
that Defendants "should reasonably anticipate being haled into court
there." World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. at
567, Accordingly, the Court has personal jurisdiction over Defendants,
and Defendants' motion to dismiss is denied.