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Bab Systems, Inc. v. Pilatus Investment Group

January 31, 2007

BAB SYSTEMS, INC., AN ILLINOIS CORPORATION AND BAB, INC., A DELAWARE CORPORATION, PLAINTIFFS,
v.
PILATUS INVESTMENT GROUP, INC, A CALIFORNIA CORPORATION, KIBOK LEE, BEE INVESTMENT, INC., A CALIFORNIA CORPORATION, AND JAMES LEE, DEFENDANTS.



The opinion of the court was delivered by: Charles P. Kocoras, District Judge

MEMORANDUM OPINION

Before this Court are Defendants Bee Investment, Inc. ("Bee Investment") and James Lee's motions to dismiss for lack of personal jurisdiction, or in the alternative, for transfer of venue. For the following reasons, Bee Investment and James Lee's motion to dismiss for lack of personal jurisdiction is granted, and their motion to transfer venue is denied as moot.

BACKGROUND

In 1995, Plaintiff BAB Systems, Inc., an Illinois corporation, entered into a contract (the "Franchise Agreement") with Paul and Mary Ellen Bretag ("the Bretags") under which the Bretags were granted the right to operate a Big Apple Bagels store in Orange County, California ("the Store"). The Bretags assigned this right to BBH, Inc., a California corporation owned by the Bretags and Richard Bellettini and Margaret Bellettini (collectively, "the Franchisees"). The Franchise Agreement contained specific conditions with respect to the sale, termination, and renewal of the franchise as well as the protection of proprietary information. In particular, the Franchise Agreement prohibited the Franchisees from transferring the franchise or the store without the prior written approval of BAB Systems or from transferring the store separately from the franchise.

Plaintiffs allege that the Franchisees sold the Store and its assets, but not the franchise, to Defendants Kibok Lee and Pilatus Investment Group ("Pilatus"), who then operated the Store essentially as a Big Apple Bagels store in all but the name.

In their Amended Complaint, Plaintiffs seek to add California citizens Bee Investment and James Lee to this litigation. Defendants James Lee and Bee Investment acted as real estate agents for Kibok Lee, Pilatus, and the Franchisees in the sale of the Store. Plaintiffs allege that James Lee and Bee Investment knew that the Franchisees operated the Store pursuant to a Franchise Agreement and were aware of the provisions restricting the transfer of the Store. In addition, Plaintiffs allege that James Lee and Bee Investment falsely advertised the Store for sale without disclosing that the Store was subject to the Franchise Agreement. James Lee and Bee Investment's actions, Plaintiffs claim, amount to tortious interference with contract and violation of two sections of the California Business and Professions Code prohibiting unfair business practices and deceptive advertising.

LEGAL STANDARDS

Fed. R. Civ. P. 12(b)(2) governs motions to dismiss based upon lack of personal jurisdiction. Under this rule, the party asserting jurisdiction shoulders the burden of proof, but that party need only make a prima facie showing that jurisdiction exists. See Saylor v. Dyniewski, 836 F.2d 341, 342 (7th Cir. 1988). A court may receive affidavits to determine whether personal jurisdiction exists. Purdue Research Foundation v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). Once a defendant submits affidavits or other evidence to counter a plaintiff's assertion that jurisdiction exists, the burden shifts back to the plaintiff to submit affirmative evidence supporting jurisdiction. Id. at 782-83. However, the plaintiff is entitled to have all factual disputes arising from conflicts in the affidavits, and all undenied factual allegations, resolved in his or her favor. Id. at 782; Saylor, 836 F.2d at 342.

DISCUSSION

As real estate brokers, Bee Investment and James Lee acted as buyers' and sellers' agents in the sale of the Store to Defendants Pilatus and Kibok Lee - a transaction which took place entirely in California. Plaintiffs allege that Bee Investment and James Lee are nonetheless subject to personal jurisdiction in this Court because they were aware of the Franchise Agreement, knew about BAB Systems' rights with respect to the Store, and intended to harm Illinois-based BAB Systems. Bee Investment and James Lee dispute that this Court has personal jurisdiction over them, and in support of their claim, submit affidavits in which they assert that they have never transacted business in Illinois and they did not have any personal knowledge of Plaintiffs' business activities or their domicile in Illinois.

This Court has already addressed questions of personal jurisdiction in this case, holding that personal jurisdiction is proper over Defendants Pilatus and Kibok Lee based upon their alleged intent to interfere with Plaintiffs' contractual and intellectual property rights. Bab Systems, Inc. v. Pilatus Inv. Group, Inc.,2005 WL 2850119 (N.D. Ill., Oct. 27, 2005). Plaintiffs now claim that our decision with respect to Pilatus and Kibok Lee should control with respect to Bee Investment and James Lee. However, a determination of whether personal jurisdiction exists is necessarily personal to each defendant, and so we cannot automatically apply our prior decision to Bee Investment and James Lee. See Asahi Metal Industry Co., Ltd. v. Superior Court of California, 480 U.S. 102, 108 (1987) (jurisdiction proper only when minimum contacts result from "actions by the defendent himself that create a 'substantial connection' with the forum State") (emphasis in original).

When a case is before a court on the basis of diversity jurisdiction, a federal district court in Illinois may exercise personal jurisdiction over a nonresident defendant only if an Illinois state court would have jurisdiction. See RAR Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1275 (7th Cir. 1997). The Illinois long-arm statute authorizes jurisdiction over nonresident defendants upon any basis permitted by either the Illinois or federal constitutions. 735 ILCS 5/2-209(c); Hyatt Int'l Corp.v. Coco, 302 F.3d 707, 716 (7th Cir. 2002) (noting that the permissible bases for jurisdiction under the Illinois long arm statute are not confined to those enumerated in 735 ILCS 5/2-209(a)). As the Seventh Circuit has suggested that there is little practical difference between the state and federal standards, RAR, Inc., 107 F.3d at 1276-1277, we will examine the question of whether or not personal jurisdiction may be constitutionally imposed with reference to the federal due process clause.

Jurisdiction over a nonresident defendant is constitutionally permissible only when that 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.'" Id. (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). As Plaintiffs do not contend that either Bee Investment or James Lee had contacts with Illinois sufficient to establish general jurisdiction, we examine whether or not Plaintiffs have made a prima facie showing that Bee Investment and James Lee should be subject to the specific jurisdiction of this Court.

A nonresident defendant can be subject to "specific jurisdiction" only if the suit arises out of or relates to his contacts with the forum state. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984). Specific jurisdiction exists when a defendant has "purposefully directed" his activities at residents of the forum and the litigation results from alleged injuries that "arise out of or relate to those activities." Burger King Corp. v. Rudzewicz,471 U.S. 462, 471-72 (1985) (internal citations omitted). To determine whether a defendant could be said to have purposefully established minimum contacts with the forum state, courts ask whether or not "the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there." Id. at 474. A defendant may not be subjected to jurisdiction on the basis of "random," "fortuitous," or "attenuated" contacts, or on account of "the unilateral activity of another party or a third person." Id. at 475. However, where a defendant has deliberately engaged in actions creating a substantial connection with the state or has created continuing obligations between himself and residents of the forum, "he manifestly has availed himself of the privilege of conducting business there, and because his activities are shielded by 'the benefits and protections' of the forum's laws it is presumptively not unreasonable to require him to ...


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