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Royal Sleep Products, Inc. v. Restonic Corp.

February 6, 2009

ROYAL SLEEP PRODUCTS, INC., A FLORIDA CORPORATION, PLAINTIFF,
v.
RESTONIC CORPORATION, AN ILLINOIS JUDGE REBECCA PALLMEYER CORPORATION, RESTONIC MATTRESS CORPORATION, AN ILLINOIS CORPORATION, SLEEP ALLIANCE, LLC, A DELAWARE LIMITED LIABILITY COMPANY, ROYAL BEDDING COMPANY OF BUFFALO, A NEW YORK CORPORATION, JACKSON MATTRESS CO. LLC, A NORTH CAROLINA LIMITED LIABILITY COMPANY, CONTINENTAL SILVERLINE PRODUCTS L.P., A TEXAS LIMITED PARTNERSHIP, STEVENS MATTRESS MANUFACTURING CO., A NORTH DAKOTA CORPORATION, TOM COMER, JR., AN INDIVIDUAL, DREW ROBINS, AN INDIVIDUAL, AND RICHARD STEVENS, AN INDIVIDUAL, DEFENDANTS.



The opinion of the court was delivered by: Rebecca R. Pallmeyer United States District Judge

MEMORANDUM OPINION AND ORDER

Defendant Restonic Corporation ("Restonic") is the owner of certain patents and trademarks, as well as "programs, services and know-how" relating to the manufacture and sale of mattresses and box springs. Plaintiff Royal Sleep Products, Inc. ("Royal Sleep") is one of several licensees of these intellectual property rights. In this action, Royal Sleep claims that Restonic; its subsidiary, Restonic Mattress Corporation (RMC"); and several other Restonic licensees interfered with two significant business opportunities available to Royal Sleep and, in so doing, breached fiduciary obligations that Defendants owed to Royal Sleep. Several of the Defendants have moved to dismiss the case for lack of personal jurisdiction. For the reasons stated here, the motions are granted.

FACTS

The facts relevant to this motion are the moving parties' contacts with Illinois and the relationship between those contacts and the dispute before the court. As those facts cannot be assessed without some context, however, the court begins by reviewing the factual allegations in the complaint, presumed true at this stage.

The Parties*fn1

Plaintiff Royal Sleep is a Florida corporation with its principal place of business in Miami, Florida. Complaint ¶ 3. Gary Robinson owns Royal Sleep. Id. ¶ 19. Defendant Restonic is a Delaware corporation, and its subsidiary, RMC, is an Illinois corporation; both have their principal places of business in Rosemont, Illinois. Id. ¶¶ 4, 5, 18.*fn2 The remaining Defendants are business associations that, like Plaintiff, are licensees of Restonic, as well as their owners: Jackson Mattress Co., LLC is a North Carolina limited liability company whose sole manager, Defendant Tom Comer, is a New York resident. Id. ¶¶ 7, 11, 21; Jurisdictional Statement, [Docket No. 9], ¶ 7. Royal Bedding Company of Buffalo is a New York corporation, also owned by Mr. Comer, with its principal place of business in Buffalo, New York. Complaint ¶¶ 8, 20. Continental Silverline Products, L.P. is a limited partnership located in Houston, Texas, whose managing partner, Drew Robins, resides in Texas. Id. ¶¶ 9, 22; Jurisdictional Statement ¶ 9. Plaintiff alleges that Defendant Stevens Mattress Manufacturing Co. is a North Dakota corporation with its principal place of business in Grand Forks, North Dakota, and is owned by Defendant Richard Stevens, a North Dakota resident; but Plaintiff also alleges that Stevens Mattress Manufacturing, Inc. (despite the slight difference in its name, apparently the same entity as Stevens Manufacturing Co.), owned by Mr. Stevens, is located in Grand Rapids, Michigan. Complaint ¶¶ 10, 13, 23. The complaint alleges that the four licensee Defendants-Jackson Mattress, Royal Bedding, Continental Silverline and Stevens Mattress, and their owners-formed Defendant Sleep Alliance, LLC as a "strategic alliance." Id. ¶ 24. Sleep Alliance is a Delaware limited liability company whose members-Comer, Robins, and Stevens-are residents of New York, Texas, and North Dakota, respectively. Jurisdictional Statement ¶ 6.

Plaintiff's License Rights

Royal Sleep enjoys the right to use Restonic's patents, trademarks and know-how through a sublicense agreement with RMC. Complaint ¶ 26.*fn3 The sublicense grants Plaintiff the right to enjoy RMC's services-including advertising services, recommendations, marketing information and data processing service-on the same terms as are available to all other licensees. Id. ¶ 63. Plaintiff alleges that when Royal Sleep executed a sublicense agreement with RMC in April 2001, Plaintiff's owner, Mr. Robinson, relied on "written and oral assurances" that Royal Sleep "would operate the only manufacturing facility [presumably for Restonic products] in the State of Florida." Id. ¶ 25. In addition to the sublicense agreement, Royal Sleep alleges that it "also became a signatory to the Restonic National Account Program." Id. ¶ 27. According to Royal Sleep, that program "mandates that with respect to national accounts obtained by Restonic, the Restonic licensee whose manufacturing facility is geographically the closest to the product shipping location" will ordinarily be the licensee who will serve the customer. Id. Plaintiff and the Defendant sublicensees are also owners of shares of RMC: Plaintiff owns 15 of the 345 shares; Jackson Mattress owns 60 shares; Royal Bedding owns 15 shares; Continental Silverline owns 60 shares; and Stevens Mattress owns 45 shares. Id. ¶¶ 19-23, 32.*fn4

Formation of Sleep Alliance

Sometime in 2002, Tom Comer, the owner of Defendants Jackson Mattress and Royal Bedding, purchased the rights to Restonic licenses in North Carolina; Tampa, Florida; and Jacksonville, Florida, as well as a warehouse in Jacksonville. Id. ¶ 28. Also in 2002, Mr. Comer met with Mr. Robinson, Plaintiff's owner, at a tradeshow in Nashville, Tennessee. Through Mr. Robinson, Plaintiff made an offer to purchase the licenses for Jacksonville and Tampa, and the Jacksonville warehouse. Id. ¶ 29. Comer rejected the offer, and allegedly announced his intention to push Plaintiff out of business in Florida and make Mr. Robinson "'regret the day he heard the Restonic name.'" Id. ¶ 30.

Four years later, sometime in the summer of 2006, Mr. Comer, Mr. Robins, and Mr. Stevens (the owners of Jackson Mattress, Royal Bedding, Continental Silverline, and Stevens Mattress) formed a limited liability company, Sleep Alliance, LLC. Id. ¶ 31. Plaintiff alleges that the combined total of their RMC shares was 180, making Sleep Alliance "the majority [52%] shareholder of Restonic and RMC." Id. ¶ 32.*fn5 Sleep Alliance allegedly fired Carlene Evenson from her position as President of Restonic and replaced her with a personal friend of Mr. Comer's, Steve Russo. Id. ¶ 33. Sleep Alliance also voted in two members of the RMC board of directors: Dan Cantor and Adam Weinman; Weinman soon resigned and was replaced by Mr. Comer himself. Id. ¶¶ 34, 35. Negotiations with Mattress Giant

Plaintiff alleges that before Sleep Alliance took control of RMC, RMC had been negotiating with Mattress Giant.*fn6 Id. ¶ 36. Donna Favia, vice president of sales for RMC, announced at a Restonic licensee meeting in July 2006 that the negotiations were going well, and that "RMC had several meetings with Mattress Giant . . . to show Mattress Giant some product samples" (the complaint does not reveal who participated in these meetings), including a meeting at a facility in Houston owned by Mr. Robins. Id. ¶ 37. Plaintiff alleges that a successful agreement with Mattress Giant would have benefitted all Restonic licensees, including Plaintiff, because orders placed by Mattress Giant would be filled by the Restonic licensee whose facilities were closest to the Mattress Giant warehouses. Id. ¶ 38. Plaintiff alleges that soon after the Houston meeting, Sleep Alliance "interfered with these negotiations and took over the negotiations from RMC corporate on its own behalf." Plaintiff claims that "According to Mr. Comer, . . . [a Sleep Alliance/Mattress Giant deal] would be for the benefit of Sleep Alliance and not RMC and the Restonic licensees." Id. ¶ 39. The complaint does not say when or where Mr. Comer expressed this view; it does allege that Sleep Alliance's conduct in "usurping the benefit of the Mattress Giant deal" was a breach of fiduciary duty to Restonic's licensees. Id. ¶ 40.

Plaintiff's Overtures to Become Lady Americana's Supplier to Mattress Giant

On July 7, 2007, Lady Americana, which, like RMC, is a group of mattress manufacturing licensees, entered into an agreement to sell its mattresses to Mattress Giant. Id. ¶ 42. When he heard this news, Mr. Robinson contacted Lady Americana's president, Kerry Tramell, offering to manufacture the Lady Americana Product for Mattress Giant (a move that presumably would have required Plaintiff to become a Lady Americana licensee). Id. ¶ 43. Mr. Tramell asked Mr. Robinson to meet with him and other executives in Oklahoma. Id. ¶ 44. One day before the planned visit, Mr. Comer called Mr. Robinson and asked whether Royal Sleep intended to become a Lady Americana licensee; Comer did not reveal how he had learned about Robinson's overtures to Lady Americana. Id. ¶ 45. Mr. Robinson's July 10 meeting with Lady Americana executives "went well" until Mr. Trammell disclosed that "Mattress Giant" had said "negative things" about Plaintiff; Mr. Trammell nevertheless expressed interest in touring Plaintiff's Miami facility. Id. ¶¶ 46, 47. Steve Booker, Lady Americana's sales manager, did tour Plaintiff's Miami facility on July 21, 2007, and was favorably impressed; he disclosed that the source of the negative comments about Plaintiff was "someone at Restonic, . . . likely Mr. Comer." Id. ¶ 48. In a conversation with Mr. Robinson the following day, Mr. Robins acknowledged he had heard similar negative comments about Plaintiff "from Mattress Giant but was unaware of the source." Id. ¶ 49. Plaintiff alleges that Mr. Comer's "negative comments" included false statements that Plaintiff was liquidating its business, did not meet product specifications or honor warranties, and was in jeopardy of losing its license with Restonic. Id. ¶ 50. Mr. Comer's negative comments caused Plaintiff to lose the opportunity to enter into an agreement with Mattress Giant. Id. ¶ 52. On September 11, 2007, Mr. Robinson learned that Sleep Alliance personnel were attempting to negotiate an agreement between Sleep Alliance and Mattress Giant. Id. ¶ 53.

On October 19, 2007, Mr. Robinson contacted RMC's Vice President of Sales, Donna Favia, and urged that RMC pursue negotiations with Mattress Giant. Id. ¶ 64. Ms. Favia responded by saying she "had to consult with Mr. Russo" regarding this request. Id. ¶ 65. Because Mr. Russo had significant contacts in the mattress business, Mr. Robinson asked him to pursue certain other "bedding accounts" for RMC, including one the complaint refers to as "Famous Tates." Id. ¶ 66. In violation of his obligation to assist Plaintiff, a Restonic licensee, Mr. Russo refused to contact Famous Tates, telling Mr. Robinson that Mr. Comer was interested in pursuing that customer. Id. ¶ 67. (Whether Famous Tates was geographically closer to Plaintiff's facility or to one owned by Mr. Comer is not clear from the complaint.)

Failed Buyout Negotiations

In the fall of 2006, Plaintiff alleges, "Sleep Alliance toured the Miami facility." Id. ¶ 41. (Plaintiff does not identify who it was at Sleep Alliance that participated in this tour, nor even identify the owner of the "Miami facility"; the court presumes the reference is to Plaintiff's own facility in Miami.) Deborah Gory of Sleep Alliance reviewed Plaintiff's financial statements, and thereafter, "Sleep Alliance approached Royal [Sleep] with offers" either to purchase Royal Sleep or enter into a "supply agreement" with Royal Sleep. Id. ¶ 41.(The Complaint does not identify the individuals on either side of these negotiations, nor does it explain which of the two parties was contemplated to be the supplier in the potential "supply agreement.") Several months later, in August 2007, Mr. Russo "approached Mr. Robinson to determine whether Mr. Robinson" would sell Royal Sleep's business and its 15 shares of RMC stock to Sleep Alliance. Id. ¶ 54. (Plaintiff does not explain how Mr. Russo, who was allegedly made President of Restonic, had authority to negotiate for Sleep Alliance.) On behalf of Royal Sleep, Mr. Robinson agreed to accept payment for this transaction "over time." At Mr. Comer's request, Mr. Robinson agreed to provide Royal Sleep's financial statements for review, in return for Mr. Robinson's having access to the Sleep Alliance financial statements. Id. ¶ 55.

Sleep Alliance later reneged on its commitment to provide Plaintiff with Sleep Alliance's own financial statements and apparently declined to proceed with its own review of Plaintiff's financial statements, as well, contending (again, Plaintiff does not identify the individual who made this contention) that Sleep Alliance's review of Plaintiff's financials "could potentially expose" one of the parties "to future legal action." Id. ¶ 56. In a telephone conversation on September 18, 2007, Mr. Robins broke off the purchase negotiations, telling Mr. Robinson that Sleep Alliance would be opening its own manufacturing facility in Florida in order to do business with Mattress Giant, which, Mr. Robins claimed, preferred to "do business with a company that owned all of its own factories, as opposed to a licensing group . . . ." Id. ¶¶ 57, 58. At some point following this conversation, Sleep Alliance terminated the purchase negotiations by letter. Id. ¶ 59. In a later conversation with Mr. Robinson, Mr. Russo acknowledged that it "made no business or economic sense" for Sleep Alliance to open a factory in Tampa, and that Sleep Alliance's decision to do so was "a very bad business move" for Restonic, RMC, and Sleep Alliance itself. Id. ¶ 61.

Plaintiff's Claims

Plaintiff alleges that these events support several claims. He alleges that Mr. Comer's interference in Plaintiff's negotiations with Lady Americana and Mattress Giant constituted a breach of fiduciary duty (Count I); that the Sleep Alliance/Mattress Giant deal constituted a breach of the fiduciary duty of loyalty on the part of Sleep Alliance, Jackson Mattress, Continental Silverline, Stevens Mattress, Mr. Robins, and Mr. Stevens (Count II); that Sleep Alliance, Jackson Mattress, Continental Silverline, Stevens Mattress, Mr. Robins, and Mr. Stevens aided and abetted Mr. Comer's breach of his fiduciary duty (Count III); that Mr. Comer tortiously interfered with Plaintiff's prospective economic advantage in deals with Lady Americana (Count IV) and with Mattress Giant (Count VI); that Defendants Restonic, RMC, Sleep Alliance, Jackson Mattress, Continental Silverline, Stevens Mattress, Mr. Robins, and Mr. Stevens are guilty of tortious interference (Counts V and VII); that the same Defendants tortiously interfered with Plaintiff's license agreement (Counts VIII and IX); that Defendants Mr. Comer and Jackson Mattress defamed him (Count X); and that Defendant RMC breached the license agreement with Plaintiff (Count X).

The individual Defendants (Comer, Robins, and Stevens) and the businesses they own-Defendants Jackson Mattress, Continental Silverline, Stevens Mattress, and Sleep Alliance-have moved to dismiss the case for lack of personal jurisdiction.*fn7

DISCUSSION

Where jurisdiction is based on diversity of citizenship, a federal court sitting in Illinois has personal jurisdiction only where an Illinois state court would also have jurisdiction. Citadel Group Ltd. v. Washington Regional Med. Ctr., 536 F.3d 757, 760 (7th Cir. 2008). The exercise of personal jurisdiction must comply with the requirements of the Illinois long-arm statute and with state and federal constitutional due process standards. RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997).

The Illinois long-arm statute provides for the exercise of personal jurisdiction to the extent constitutionally permissible under the Illinois and United States Constitutions. 735 ILCS 5/2-209; see Hyatt Intern. Corp. v. Coco, 302 F.3d 707, 715 (7th Cir. 2002) (noting that the Seventh Circuit has repeatedly recognized "that there is no operative difference between the limits imposed by the Illinois Constitution and the federal limitations on personal jurisdiction."). Due process under both the Illinois and United States Constitution requires the court to ask whether the nonresident defendants have "certain minimum contacts with [the state] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" Citadel, 536 F.3d at 761 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). Depending on the nature of a defendant's contacts with the state, the court may assert either "general" or "specific" jurisdiction. International Medical Group, Inc. v. American Arbitration Assoc., Inc., 312 F.3d 833, 846 (7th Cir. 2002). Specific jurisdiction "refers to jurisdiction over a defendant in a suit 'arising out of or related to the defendant's contacts with the forum.'" Id. ...


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