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GCIU-Employer Retirement Fund v. Goldfarb Corp.

August 6, 2008

GCIU-EMPLOYER RETIREMENT FUND, PLAINTIFF,
v.
THE GOLDFARB CORPORATION, A CANADIAN CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Joe Billy McDADE United States District Judge

OPINION AND ORDER

Before the Court is Defendant's Motion to Dismiss for Lack of Personal Jurisdiction (Docs. 6, 7). Plaintiff filed a Response (Doc. 9). This matter was referred to United States Magistrate Judge Byron Cudmore for a Report and Recommendation. Judge Cudmore recommended that Defendant's Motion to Dismiss for Lack of Personal Jurisdiction be allowed. Plaintiff filed an Objection to the Report and Recommendation (Docs. 14, 15) and Defendant filed a Memorandum in Opposition (Doc. 17). For the following reasons, the Report and Recommendation is ADOPTED and Defendant's Motion to Dismiss for Lack of Personal Jurisdiction is GRANTED.

BACKGROUND

Defendant Goldfarb Corporation ("Goldfarb") is a publicly traded investment holding company with its principal place of business in Canada. (Doc. 13 at 3; Doc. 1 at 2.) Goldfarb claims it does not maintain a place of business (or have a license to do so), employ individuals, serve customers, or have a designated agent for service inside the United States.*fn1 In April 1995, Goldfarb purchased 66% of the stock in Fleming Packaging Corporation ("Fleming") and thereafter began nominating Fleming's directors. Fleming was a Delaware corporation with its principal place of business in Peoria, Illinois, and operated as a large printer of labels and specialty packaging products throughout the United States, Canada, and Mexico. Goldfarb claims it never controlled the daily affairs or internal policies of Fleming and asserts each company filed a separate tax return based on separate payrolls, bank accounts, and leases.

In 1997, two years after Goldfarb had purchased stock in Fleming, Fleming entered into a loan agreement with Bank One. (Doc. 1 at 5.) In the years that followed, Fleming began having financial difficulties, defaulted on the loan, and amended the loan agreement several times. After a received offer to purchase Fleming fell through in March 2000, Goldfarb took Fleming off the market and "embarked on a turn around strategy." (Doc. 1 at 5-6.) However, Fleming continued to have financial difficulties so its debt holders put their warrants to Fleming in April 2001. As a result, Goldfarb decided to purchase additional warrants and common stock from the debt holders and increased its ownership in Fleming to 82.2%. (Doc. 1 at 2, 6.)

However, prior to Goldfarb increasing its ownership, Fleming, through its wholly-owned subsidiaries, entered into collective bargaining agreements requiring Fleming to contribute to Plaintiff GCIU-Employer Retirement Fund ("GCIU"),*fn2 a multi-employer pension plan These agreements were effective from September 1999 to August 2002 and July 2000 to June 2003 and GCIU alleges that during this time period Goldfarb was in a "parent-subsidiary" control group with Fleming because its ownership in Fleming was greater than 80%. (Doc. 1 at 3, 6.)

Meanwhile, in March 2001, three members of the Goldfarb family, Martin, Stanley, and Alonna Goldfarb were elected as Fleming officers while also maintaining seats on its Board of Directors. (Doc. 1 at 5-6.) That December, the Goldfarb Corporation presented a restructuring plan to Fleming's lenders, but they rejected the plan and declared Fleming in default in February 2002. (Doc. 1 at 7; Doc. 9 at 5.) In March 2002, Fleming and Bank One amended the loan agreement to require Fleming to sell off two of its businesses. (Doc. 1 at 9.) The same day, Goldfarb and Bank One entered into a subsequent agreement for Goldfarb to make a secured, subordinated $1.5 million loan to Fleming when it sold off the businesses. This agreement was stipulated to be governed by Michigan law and contained a Michigan forum selection clause.

In July 2002, Martin, Stanley, and Alonna Goldfarb met with Bank One representatives in Canada before a scheduled Fleming board meeting. (Doc. 1 at 9.) GCIU alleges the purpose of the meeting was to notify Bank One of Goldfarb's plan to sell two divisions of Fleming for $30.5 million and use $4.5 million to restructure Fleming by consolidating its Peoria operations and closing others. (Doc. 9-6 at 1.)

During the Fleming board meeting, Goldfarb reneged on its promise to infuse $1.5 million into Fleming, reminding Bank One that Fleming was not aware of the money and Goldfarb already considered the money lost.*fn3 Meanwhile, the other lenders at the meeting rejected Goldfarb's restructuring plan and insisted Fleming hire an independent consultant. (Doc. 9-6 at 2.)

In September 2002, Fleming sold off part of its Peoria operations, triggering Goldfarb's duty to loan Fleming $1.5 million. Goldfarb did not perform so Bank One made a written demand on Goldfarb and notified Fleming of the default under the loan agreement. Goldfarb sought to condition this $1.5 million loan on Bank One putting in additional money for restructuring. (Doc. 1 at 10-11.) Negotiations ensued and Goldfarb ultimately loaned Fleming $765,000 of the $1.5 million. (Doc. 1 at 11-12.) Bank One thereafter decided against adding more money in favor of a sale. (Anderson Dep. pp. 21-22.) In response, Goldfarb's agreed in principal to advance an additional $1.5 million to Fleming if the lenders funded Fleming's operations until July 2003. (Doc. 1 at 12.)

However, between December 2002 and January 2003, the lenders rejected Fleming's proposals, sought to have Fleming sold, gave notice of default, and retained bankruptcy lawyers. (Doc. 1 at 12.) The following month, the loan agreement was amended again and the lenders agreed to hold off exercising their default rights if Goldfarb relinquished control of Fleming to an acceptable third party. (Doc. 1 at 12; Anderson Dep. p. 33.) The lenders also stated Goldfarb's obligations would be forgiven and it would receive 3.5% of Fleming's sale proceeds if its officers resigned from Fleming's Board of Directors and Goldfarb executed an irrevocable proxy to vote its shares to George Gialenios, who was hired in 2002 to develop Fleming's restructuring plan. (Doc. 1 at 14.) Two of Fleming's subsidiaries agreed to be guarantors and Gialenios agreed to release Goldfarb from the $300,000 it owed him under its employment agreement with Fleming. (Doc. 1 at 13.) In response, Stanley, Martin, and Alana Goldfarb resigned as directors of Fleming and Goldfarb signed an irrevocable proxy to Gialenios in February 2003.

In May 2003, Fleming, along with two of its subsidiaries, filed for bankruptcy in the Central District of Illinois. See In re Fleming Packaging Corp., No. 03-82408 (Bankr. C.D. Ill.). Goldfarb filed a proof of claim in the bankruptcy proceeding for $771,309.*fn4 (Doc. 1 at 16.) In July 2003, the Bankruptcy Court approved Fleming's sale for $26 million, which was less than the balance owed to its secured lenders. See In re Fleming Packaging Corp., 370 B.R. 774, 780 (Bankr. C.D. Ill. 2007). Prior to the Bankruptcy Court's approval, Fleming repudiated the collective bargaining agreements and Plaintiff GCIU decided Fleming had completely withdrawn from the fund under the Employee Retirement Income Security Act ("ERISA"). (Doc. 1 at 17.)

In July 2004, the bankruptcy trustee, on behalf of Fleming's Estate, brought an adversary proceeding against Goldfarb involving many of the same transactions and events alleged in this case. See In re Fleming, 370 B.R. 774. In September 2004, GCIU issued Goldfarb a notice of failure to pay its withdrawal liability and demanded payment. Goldfarb responded that it was not subject to personal jurisdiction in the United States and that ERISA did not reach it in Canada. (Doc. 1 at 18.) GCIU filed the present suit in June 2007, seeking to collect the withdrawal ...


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