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SYSTEMS AMERICA, INC. v. PROVIDENTIAL BANCORP

August 19, 2005.

SYSTEMS AMERICA, INC., a Delaware Corporation and NEXENT VENTURES LLC, a Delaware Corporation, Plaintiffs,
v.
PROVIDENTIAL BANCORP, LTD., an Illinois Corporation; ROBERT JORDAN; NOMAD VENTURES LLC, an Illinois Limited Partnership; INTERIMCEO, INC., an Illinois Corporation; BARRETT MIKELBERG; and SAMMY AVERBUCH, Defendants.



The opinion of the court was delivered by: AMY J. ST. EVE, District Judge

MEMORANDUM OPINION AND ORDER

On April 4, 2005, the United States District Court for the Northern District of California transferred this action to this District. In their eight-count Complaint, Plaintiffs Systems American, Inc. ("Systems America") and Nexent Ventures, LLC ("Nexent") allege violations of the California Uniform Trade Secrets Act and the California Business and Professions Code against all Defendants. Plaintiffs also allege trade libel against Defendants Barrett Mikelberg ("Mikelberg") and Providential Bancorp, Ltd. ("PBL"), breach of written and oral contract against PBL, and other common law claims against all Defendants. Before the Court is PBL's motion to dismiss Plaintiffs' California state law claims pursuant to Federal Rule of Civil Procedure 12(b)(6) and the remainder of Plaintiffs' claims pursuant to Federal Rule of Civil Procedure 9(b). Plaintiffs request that the Court allow them to amend their Complaint if the Court dismisses the California state law claims. Because the Court concludes that Illinois law applies, Plaintiffs' request to amend their Complaint is granted. As such, the Court grants Defendants' motion to dismiss in part.*fn1

LEGAL STANDARD

  The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal sufficiency of a complaint, not the merits of the case. Triad Assoc., Inc. v. Chicago Hous. Auth., 892 F.2d 583, 586 (7th Cir. 1989). The Court will only grant a motion to dismiss if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Centers v. Centennial Mortgage, Inc., 398 F.3d 930, 933 (7th Cir. 2005) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed.2d 80 (1957)). In making its determination, the Court must assume the truth of the facts alleged in the pleadings, construe the allegations liberally, and view them in the light most favorable to the plaintiff. Centers, 398 F.3d at 933.

  BACKGROUND

  I. Plaintiffs' Allegations

  A. Parties

  Systems America is a Delaware corporation with its principal place of business in San Jose, California. (R. 40-1, Complaint; ¶ 1.) Adesh Kumar Tyagi ("Tyagi") is the principal stockholder of Systems America. (Id. ¶ 13.) Nexent is a Delaware corporation with its principal place of business in San Jose, California. (Id. ¶ 2.) Tyagi serves Nexent in some capacity. (Id. ¶ 14.)

  PBL is an Illinois mortgage brokerage corporation with its principal place of business in Chicago, Illinois. (Id. ¶ 3.) Defendants Nomad Ventures, LLC ("Nomad") and Interimceo, LLC, ("Interimceo") are both Illinois corporations with their principal place of business in Chicago, Illinois. (Id.) Nomad and Interimceo are both stockholders of PBL. Id. Defendant Robert Jordan ("Jordan") is the managing partner of Interimceo and a resident of Illinois. (Id. ¶¶ 4, 14.) Defendant Dale Turken ("Turken") is a stockholder in PBL and a resident of Illinois. (Id. ¶¶ 5, 16.) Defendant Mikelberg is a resident of Illinois and the President of PBL. (Id. ¶¶ 6, 29.) Defendant Sammy Averbuch ("Averbuch") is a resident of Illinois. (Id. ¶ 7.)

  B. Term Sheet

  Plaintiffs allege that on or about November 2003, Jordan approached Tyagi in Tyagi's capacity with Nexent to discuss a potential investment in PBL. (Id. ¶ 14.) As a result, Nexent and PBL entered into a written non-disclosure agreement. (Id.) During December 2003 and January 2004, Plaintiffs, Jordan, and PBL negotiated the investment. (Id. ¶ 15.) The negotiations culminated by Turken and Tyagi signing a Term Sheet. (Id. ¶ 16.) In compliance with the terms set out in the Term Sheet, Jordan and Turken visited the Plaintiffs' facility in India. Id. Under the conditions of the Term Sheet, Nexent agreed to invest $2 million in services provided by Systems America in exchange for Nexent receiving 16.66 percent worth of preferred stock in PBL. (Id.) Systems America also agreed to provide outsourcing services from India to originate, process, and close mortgages for PBL. (Id. ¶ 16.)

  After Plaintiffs and PBL signed the Term Sheet, Systems America commenced its part of the bargain by assigning one hundred of its employees in India to originate, process, and close mortgages for PBL. (Id. ¶ 17.) Plaintiffs estimate that these services were worth approximately $1,187,000. (Id.) After Plaintiffs ceased providing these services, Plaintiffs contend that Turken forwarded an e-mail to the staff of PBL praising Systems America. (Id. ¶ 18.) Moreover, Turken allegedly expressed PBL's willingness to sign a Services Agreement with Plaintiffs. (Id.) Plaintiffs allege that they relied on Turken's representations and continued to provide services to PBL pursuant to the Term Sheet. (Id.)

  In or around March 2004, Jordan forwarded to Tyagi a Providential Series B Stockholders Agreement, a Series B Stock Purchase Agreement, a confidential acquisitions memorandum, and an acquisition memorandum regarding distribution. (Id. ¶ 20.) On March 22, 2004, Tyagi, representing Systems America, agreed to the terms of the documents. (Id. ¶ 22.) Tyagi then sent ...


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