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Spenta Enterprises, Ltd. v. Coleman

August 4, 2008


The opinion of the court was delivered by: Robert W. Gettleman United States District Judge

Judge Robert W. Gettleman


Plaintiffs Spenta Enterprises, Ltd. ("Spenta") and Hoshang R. Karani ("Karani") have filed a nine-count complaint against defendants Chizuco and Robert Coleman arising from Spenta's purchase of 100 percent of Coleman Fire Proof Door Co.'s existing stock. The complaint alleges breach of contract (Counts I, II III, VII, and VIII); federal securities fraud in violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (2000) (Count V); and common-law fraud and fraudulent misrepresentation (Count VI). In addition, the complaint seeks indemnification (Count IV) and a declaration of rights with regard to an Installment Promissory Note (Count IX).

Defendants have moved to dismiss on two grounds. First, defendants argue the entire complaint should be dismissed under Fed. R. Civ. P. 12(b)(1) because the stock purchase agreement contained a "choice of forum" provision that did not include this court. Second, defendants argue the fraud allegations (Counts V and VI) fail to state a claim upon which relief can be granted under Fed. R. Civ. P. 12(b)(6) or, in the alternative, fail to satisfy the heightened pleading requirement for fraud under Fed. R. Civ. P. 9(b). For the reasons discussed below, the court concludes that the "choice of forum" provision is valid and enforceable, and accordingly grants the motion to dismiss the complaint in its entirety.*fn1


Spenta, an Illinois corporation, agreed in September 2006 to purchase from Chizuco Coleman all the existing stock of Coleman Fire Proof Door Co. for $3 million. Chizuco Coleman is a resident of Wisconsin, as is her husband, Robert, who ran the company prior to the purchase. Karani, a resident of Illinois, was the guarantor of Spenta.

The Stock Purchase Agreement described the representations and warranties of the seller and purchaser; outlined pre- and post-closing conditions and covenants; and stated other numerous terms in significant detail. Of particular note to the instant litigation is paragraph 9.5 of the agreement:

Governing Law; Submission to Jurisdiction. This agreement shall be governed by, and construed and enforced in accordance with, the laws of the state of Illinois. Courts within the state of Illinois (located within Lake County) will have exclusive jurisdiction over all disputes between the parties arising out of or relating to this agreement and the other transaction documents. The parties hereby consent to and agree to submit to the jurisdiction of such courts. Each of the parties waives, and agrees not to assert in any such dispute, to the fullest extent permitted by applicable law, any claim that (a) such party is not personally subject to the jurisdiction of such courts; (b) such party and such party's property is immune from any legal process issued by such courts; or (c) any litigation commenced in such courts is brought in an inconvenient forum.

The agreement also stated, under the "Rules of Construction," that "all exhibits and schedules attached to this agreement shall be deemed incorporated herein by reference as if fully set forth herein." These documents included the Installment Promissory Note, Guaranty, and Confidential Information and Non-competition agreements, each of which -- for some reason that escapes the court -- contained a "choice of forum" provision different from that in the Stock Purchase Document. The Installment Promissory Note provided in paragraph 8.8:

Venue. To the maximum extent permitted by law, borrower hereby agrees that all actions or proceedings arising in connection with this transaction shall be tried and determined only in the state and federal courts located in the County of Cook, State of Illinois. To the maximum extent permitted by law, borrower hereby expressly waives any right it may have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance with this section.

The Guaranty provided in paragraph 16:

Consent to Jurisdiction. To induce lender to accept this guaranty, guarantor irrevocably agrees that, subject to lender's sole and absolute election, all actions or proceedings in any way arising out of or related to this guaranty will be litigated in courts having situs in Lake County, Illinois. Guarantor hereby consents and submits to the jurisdiction of any court located within Lake County, Illinois, waives personal service of process and agrees that all such service of process may be made by registered mail directed to guarantor at the address stated herein and service so made will be deemed to be completed upon actual receipt. The Confidential Information and Non-competition Agreement provided in paragraph 8:

Governing Law and Forum. This agreement is executed in the State of Illinois and shall be construed and enforced in accordance with the laws of that state. All parties agree and consent that all disputes, claims, and controversies hereunder and interpretation hereof shall be brought in the exclusive forum of the federal or state courts of Illinois.

Spenta took possession of Coleman Fire on September 28, 2006. For the purposes of this opinion, it is unnecessary to describe in detail the financial and accounting irregularities Spenta subsequently encountered. It is sufficient to state that plaintiffs allege that the financial statements provided by Chizuco Coleman prior to the sale were materially false and misrepresented Coleman Fire Proof Door Co.'s financial condition; that she and her husband made omissions of material ...

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