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McCARTHY v. CZARNOWSKI DISPLAY SERVICE

August 12, 2004.

PATTI McCARTHY AND THOMPSON McCARTHY, INC. n/k/a PATMA, INC., Plaintiffs,
v.
CZARNOWSKI DISPLAY SERVICE, INC., a/k/a THE MILESTONE GROUP, Defendant.



The opinion of the court was delivered by: SAMUEL DER-YEGHIAYAN, District Judge

MEMORANDUM OPINION

This matter is before the court on Defendant Czarnowski Display Service, Inc.'s ("Czarnowski") motions to dismiss for the reasons stated below, we grant the motion in part and deny the motion in part without prejudice.

BACKGROUND

  In September 2000, plaintiff Patti McCarthy ("McCarthy"), a Georgia resident, entered into an agreement with defendant Czarnowski, an Illinois corporation with its principal place of business in Illinois. In that agreement, McCarthy and her business partner, who is not a party to this action, agreed to sell their Georgia based business, Thompson McCarthy, Inc. ("TMI"), to Milestone Group, Inc. ("Milestone"), believing at the time that Milestone was a wholly owned subsidiary of Czarnowski. McCarthy now contends that Milestone was never separately incorporated and therefore brings her complaint against Czarnowski directly. Under the Asset Purchase Agreement between the parties, Milestone agreed to pay $950,000 for TMI, with $525,000 due at closing and the remainder paid in quarterly payments over the following three years. Czarnowski, in its own name, formally guaranteed Milestone's obligations under this agreement.

  McCarthy and Milestone entered into three additional contracts pertaining to the deferred $425,000 portion of the purchase price: a Secured Promissory Note, a Security Agreement, and a Pledge Agreement. Czarnowski again signed for Milestone's obligations on the promissory note. In the Pledge Agreement, McCarthy agreed to accept Czarnowski's capital stock in Milestone as security for the deferred balance, believing that Milestone was incorporated separately from Czarnowski. In support of her belief, McCarthy points to clauses both within the agreements themselves and in ancillary correspondence from Czarnowski referring to Milestone as an Illinois corporation.

  At the same time that McCarthy negotiated the sale of her business, she also entered into an employment agreement with Milestone. Milestone agreed to employ McCarthy until December 31, 2003, with a base salary of $125,000 for 2003 and the potential to earn a $25,000 bonus if company sales exceeded $7 million for 2002. In addition, McCarthy received four weeks of paid vacation per year, a car allowance of approximately $500 monthly, access to company benefit plans and the right to reimbursement of reasonable expenses incurred while conducting the company's business. The agreement also specified that McCarthy could terminate her employment at any time for contractually defined "good reason," including reduction in her compensation. Upon termination for "good reason", McCarthy had a contractual right to the balance of her annual compensation as well as unpaid expenses. However, the agreement also contained a restrictive covenant, effective for two years after termination of the employment agreement, which specified that McCarthy would forfeit all incentive and other specified compensation owing or previously paid if she breached the covenant.

  The parties apparently fulfilled their contractual obligations without incident until May 15, 2003, when McCarthy was supposed to receive her bonus under the employment agreement. She claims that, although company sales exceeded $7 million in 2002, she did not receive her bonus. Later that summer, the head of Milestone requested that McCarthy take a leave of absence from her job, with an understanding that she would not be compensated while she was on leave. McCarthy agreed, but claims that she was still required to perform company business during her leave without salary or compensation for her expenses. In September of 2003, McCarthy gave written notice to the company that she was terminating her employment, claiming that the company unilaterally reduced her compensation and thereby provided her with contractual "good reason" to resign.

  McCarthy claims that Milestone has failed to pay her 2002 bonus or the balance of her 2003 salary and has also failed to reimburse her company expenses. In addition, she claims that the company refused to pay for her accrued, but unused, vacation time and refused to return her personal property left on its premises. According to McCarthy, Milestone now wrongfully claims that it fired her for "cause" and that such termination gave the company a right to seek damages against her. By making this claim, McCarthy further contends, Czarnowski has breached its implied duty of good faith and fair dealing under the employment agreement.

  On October 1, 2003, in the midst of the employment dispute, the final payment under the purchase agreement became due. Czarnowksi refused to make the final payment in a letter dated September 29. McCarthy responded to that refusal by letter on October 1 and then sent a written notice of default and demand for payment on October 17. While the exact facts are unclear from the complaint, it appears from the October 1 letter either that Czarnowski paid some portion of the amount owed or that McCarthy recovered that portion from her security interest. In either case, McCarthy filed this lawsuit on October 22, 2003, seeking to recover the outstanding balances of the purchase and employment agreements as well as her unreturned personal property. McCarthy also seeks a declaratory judgment invalidating the restrictive covenant in the employment agreement, enforcing the security agreement, and declaring that McCarthy is not liable to Czarnowski for damages under the employment agreement. In addition, McCarthy claims that Czarnowski fraudulently induced her into accepting stock in Milestone, a non-existent corporation, as security for the purchase agreement. She claims that this deception left her with a security interest worth significantly less than the value she bargained for and seeks both compensatory and punitive damages.

  LEGAL STANDARD

  In ruling on motions to dismiss, the court must draw all reasonable inferences that favor the plaintiff, construe the allegations of the complaint in the light most favorable to the plaintiff, and accept as true all well-pleaded facts and allegations in the complaint. Thompson v. Illinois Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002); Perkins v. Silverstein, 939 F.2d 463, 466 (7th Cir. 1991). On a 12(b)(1) motion to dismiss, the court "shall dismiss" if it determines that it "lacks jurisdiction of the subject matter." Fed.R. Civ. P. 12(h)(3). The allegations of a complaint should not be dismissed on a 12(b)(6) motion for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Nonetheless, in order to withstand a motion to dismiss, a complaint must allege the "operative facts" upon which each claim is based. Kyle v. Morton High Sch., 144 F.3d 448, 454-55 (7th Cir. 1998); Lucien v. Preiner, 967 F.2d 1166, 1168 (7th Cir. 1992). The plaintiff need not allege all of the facts involved in the claim and can plead conclusions. Higgs v. Carter, 286 F.3d 437, 439 (7th Cir. 2002); Kyle, 144 F.3d at 455. However, any conclusions pled must "provide the defendant with at least minimal notice of the claim," id., and the plaintiff cannot satisfy federal pleading requirements merely "by attaching bare legal conclusions to narrated facts which fail to outline the bases of [his] claim." Perkins, 939 F.2d at 466-67.

  DISCUSSION

  I. Forum Selection Clause

  Czarnowski argues that Counts V, VI, and VII should be dismissed because of improper venue. McCarthy's employment contract contained the following provision:
This agreement shall become effective upon its execution by both parties and it shall be construed and enforced in accordance with the internal laws of the State of Illinois with venue in the applicable circuit courts of Cook County, Illinois, irrespective of the fact that either of the parties now is or may become a resident of a different state. Both parties hereto waive any objection they may have to the jurisdiction or venue of such courts
Czarnowski claims that the clause at issue is a mandatory forum selection clause while McCarthy claims it is a permissive clause, merely ...

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