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Triad Capital Management, LLC v. Private Equity Capital Corp.

August 25, 2008

TRIAD CAPITAL MANAGEMENT, LLC AND AH PUBLISHING HOLDINGS, LLC, PLAINTIFFS,
v.
PRIVATE EQUITY CAPITAL CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Judge Joan B. Gottschall

Magistrate Judge Geraldine Soat Brown

MEMORANDUM OPINION AND ORDER

Defendant Private Equity Capital Corporation ("PECC") has moved to dismiss plaintiffs Triad Capital Management, LLC and AH Publishing Holdings, LLC's (collectively "Triad") complaint for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2) or, alternatively, to transfer the case to the District of Connecticut. For the reasons set forth below, PECC's motion to dismiss or transfer is denied.

I. BACKGROUND

Defendant PECC is a private equity firm that is incorporated in the state of Delaware and has its principal place of business in Westport, Connecticut; PECC also transacts business in Florida. PECC targets and acquires privately-owned businesses via the financial commitments of various investors. Triad is an Illinois limited liability company, located in Lake Forest, Illinois. Triad is likewise a private equity firm that acquires private entities through the commitments of investors and other equity firms.

In September, 2006, Triad was offered exclusive rights to purchase Author House Solutions, Inc. ("Author House"), an Indiana company. Triad consequently engaged the services of accountants at the Chicago office of Ernst & Young to perform a financial analysis of the proposed acquisition, and attorneys at the Chicago office of Katten, Muchin, Rosenman, LLP ("Katten") to perform a legal analysis of the deal. Triad was required to close on the Author House acquisition prior to December 31, 2006; failure to do so would result in the loss of Triad's exclusive rights.

In December, 2006, Triad's Managing Director, James Crawford ("Crawford") learned about PECC from an acquaintance, Charles Brennan ("Brennan"), with whom he was discussing the deal to acquire Author House. Shortly thereafter, Triad and PECC began negotiations concerning PECC's investment in the transaction to purchase Author House, which was allegedly necessary for Triad to have sufficient capital to consummate the deal. Negotiations between Crawford and John Ramey ("Ramey"), PECC's principal and sole decision-maker, continued via telephone, fax and emails. PECC was also in direct contact with Triad's accountants at Ernst & Young and its attorneys at Katten during this interval with respect to the proposed transaction. Crawford and Ramey met in person but once, at a meeting held on December 20, 2006 in Milwaukee Wisconsin, and neither Ramey, nor any other agent of PECC, ever traveled to Illinois in connection with the deal.

On December 23, Ramey wrote a letter (the "Letter Agreement") to Bryan Smith, the CEO of Author House, describing the agreement reached between PECC and Triad to jointly purchase Author House, subject to the terms of an already agreed upon Purchase Agreement (the "Purchase Agreement") drafted by Katten. The Purchase Agreement specified, inter alia, that the closing of the transaction would take place at Katten's Chicago office. According to the Purchase Agreement, a representative of PECC was to be present at the closing, to be held prior to December 31, 2006, to execute the closing documents and deliver the specified capital. However, the December 31 date passed without the closing having taken place, and the deal was never consummated. Triad subsequently sued PECC, alleging breach of contract and promissory estoppel. Presently before the court is PECC's motion to dismiss Triad's complaint for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). Alternatively, PECC seeks to have the suit transferred to the District of Connecticut.

II. ANALYSIS

On a motion to dismiss for lack of personal jurisdiction, it is the plaintiff who bears the burden of demonstrating the existence of personal jurisdiction. RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997). When deciding such a motion, "a court must accept all undenied factual allegations and resolve all factual disputes in favor of plaintiff." Chem. Waste Mgmt., Inc. v. Sims, 870 F. Supp. 870, 871 (N.D. Ill. 1994) (citation omitted).

In cases based upon diversity of citizenship, federal district courts sitting in Illinois have personal jurisdiction over nonresident defendants only to the extent that Illinois courts would have jurisdiction. Edelson v. Chi'en, 352 F. Supp. 2d 861, 865-66 (N.D. Ill. 2005); Interlease Aviation Investors LLC v. Vanguard Airlines, Inc., 262 F. Supp. 2d 898, 905 (N.D. Ill. 2003); see also DeLuxe Ice Cream Co. v. R.C.H. Tool Corp., 726 F.2d 1209, 1212 (7th Cir. 1984). In Illinois, courts have personal jurisdiction over nonresident defendants if permitted by: (1) Illinois statutory law; (2) the Illinois Constitution; and (3) the Constitution of the United States. Id.

The Illinois long-arm statute currently extends personal jurisdiction to the limit permitted by the Illinois Constitution and the Constitution of the United States. 735 ILCS 5/2-209(c); see also Vanguard Airlines, 262 F. Supp. 2d at 905 (citing LaSalle Bank Nat'l Ass'n v. Epstein, No. 99 C 7820, 2000 WL 283072, at *1 (N.D. Ill. Mar. 9, 2000). Moreover, the Seventh Circuit has stated that generally "there is no operative difference between the limits imposed by the Illinois Constitution and the federal limitations on personal jurisdiction" and that not since the Illinois Supreme Court's 1990 Rollins decision has an Illinois court encountered a case in which federal due process requirements permitted personal jurisdiction and Illinois due process requirements prohibited it. Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 715-16 (7th Cir. 2002). Thus, the three requirements for personal jurisdiction collapse into a single analysis. Consequently, courts of the Seventh Circuit have conducted only a federal due process analysis in determining whether personal jurisdiction may be exerted over nonresident parties. Vanguard Airlines, 262 F. Supp. 2d at 906 (citing Cont'l Cas. Co. v. Marsh, No. 01 C 0160, 2002 WL 31870531, at *4 (N.D. Ill. Dec. 23, 2002)); United Fin. Mortgage Corp. v. Bayshores Funding Corp., 245 F. Supp. 2d 884, 891-92 (N.D. Ill. 2002)). Federal due process requirements prescribe that nonresident defendants have sufficient minimum contacts with the forum state such that "maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" Hyatt, 302 F.3d at 713 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). The standard of "minimum contacts" depends upon whether general or specific personal jurisdiction is alleged. Vanguard Airlines, 262 F. Supp. 2d at 906 (citing RAR, 107 F.3d at 1277). Both Triad and PECC agree that the court does not have general personal jurisdiction over PECC. The court therefore turns to the question of whether it may exert specific personal jurisdiction over PECC.

Under the Illinois long-arm statute, a court may exert specific jurisdiction over a nonresident defendant if the defendant has (1) purposefully established minimum contacts with the state; (2) if the cause of action arises out of, or is related to, the defendant's contacts with the forum; and (3) if the exertion of jurisdiction is constitutionally reasonable. 735 ILCS § 5/2-209; RAR, 107 F.3d at 1277; Logan Products v. Optibase, 103 F.3d 49, 52 (7th Cir. 1996); United Phosphorus Ltd. v. Angus Chemical Co., 43 F. Supp. 2d 904, 912 (N.D. Ill. 1999). The United States Supreme Court has delineated two means by which the requisite "minimum contacts" may be established for purposes of specific jurisdiction: (1) purposeful availment by the defendant of the benefits and protections of the laws of the forum state such that the defendant could reasonably anticipate being haled into court [in Illinois]; or (2) harm to an individual within the state where the harm is both intentional and aimed at the forum state. RAR, 107 F.3d at 1277; Hy Cite Corp. v. BadBusinessBureau.Com, 297 F. Supp. 2d 1154, 1163 (W.D. Wis. 2004) (citing Asahi Metal Indus. Co. v. Superior Court of California, 480 U.S. 102, 109 (1987); Calder v. Jones, 465 U.S. 783, 788-90 (1984)). It is the former of the two means which is at issue in this case.

It is undisputed that the lawsuit at bar "ar[o]se out of" or is "related to" PECC's alleged minimum contacts with Illinois. Triad's breach of contract and promissory estoppel claims against PECC arose out of the alleged negotiated agreement between PECC and Triad by which PECC was to provide the necessary capital required by Triad to consummate the acquisition of Author House. The initial question before the court, then, is whether the negotiations between PECC and Triad leading up to the aborted ...


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