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Stephen Denari v. Phil Rist

January 31, 2011


The opinion of the court was delivered by: Judge Robert M. Dow, Jr.


Plaintiff Stephen Denari brings this defamation action against Defendants Phil Rist, Gary Drenik, and Prosper Business Development Corp. (collectively "Defendants"). Before the Court are two motions to dismiss or in the alternative to compel arbitration: One filed by Defendants Rist and Drenik [7], and one by Defendant Prosper Business Development Corp. ("Prosper") [5]. For the reasons below, both motions are granted and Plaintiff's complaint is dismissed.

I. Background*fn1

This lawsuit concerns a report that Defendants sent to the members of a company called BigResearch, LLC ("BigResearch").*fn2 The report contained statements that allegedly defamed Plaintiff and placed him in a false light.

BigResearch has at least two members: Defendant Prosper is the managing member and a company called Penn LLC ("Penn") is another member. (¶ 5). Penn is partly owned by a company called TMG Resources, Inc. ("TMG"); Plaintiff is the sole shareholder of TMG. (¶ 1). Rist and Drenik are the only two board members of Prosper, the only two officers of Prosper, and own the company. (Rist and Drenik Mem. [8] at 2 and Ex. B thereto, BigResearch, LLC Operating Agreement ("Op. Agreement") at § 5.02).

The BigResearch Operating Agreement provided that BigResearch would be governed by a three-person board of members. (Op. Agreement at § 5.01). Rist and Drenik, representing Prosper, received two of the three seats on the board. (Id.). Penn had the authority to appoint the remaining board member. (Id.). In or about September 2008, Penn appointed Plaintiff to serve as its designee on BigResearch's board. (¶ 6). Major decisions affecting BigResearch would be made by unanimous approval of the board of members. (Op. Agreement at § 5.01). However, the day-to-day management of the company was vested in Prosper, as BigResearch's managing member. (Id. at § 5.02).

On or about March 16, 2009, Defendants forwarded to BigResearch's members a document titled "2008 Recap-CONFIDENTIAL," which was a sort of annual report for the 2008 calendar year. (¶ 7). Among those who received the Recap was Penn's principal member in Illinois. (¶ 10). In pertinent part, the Recap stated:

Stephen J. Denari, a business associate of Jaffer Ali, has taken an active role in the Penn arbitration as an advisor to Penn. Mr. Denari is the sole shareholder in TMG Resources, Inc. TMG owns a 15% interest in Penn. Mr. Ali has designated Mr. Denari as Penn's representative to the Board of Members of the Company in his place. The Management Company opposes this designation, as do Mr. Drenik and Mr. Rist, the other two members of the Board. Due diligence related to Mr. Denari has revealed a history of litigation and conduct which would cause Mr. Denari's membership on the Board to be harmful to and not in the best interest of the Company.

The Recap went on to detail five examples of Plaintiff's past conduct in support of the statement quoted above, including an allegation that Plaintiff was a defendant in a RICO lawsuit arising out of a hedge fund ponzi scheme. (¶¶ 7-8). The report concluded that "[i]t is of grave concern to the Company that Mr. Denari might actually become a Member of the Board of Members of the Company."

Plaintiff filed the instant lawsuit in the Circuit Court of Cook County on March 15, 2010. Defendants were served on April 2, 2010, and filed their notice of removal on April 30, 2010. The complaint alleges three causes of action against Defendants: Defamation Per Se (Count I), False Light (Count II), and Defamation Per Quod (Count III). On June 17, 2010, the Court granted counsel for Plaintiff leave to withdraw [16]. Plaintiff filed a pro se appearance on July 8, 2010 [19]. The motion filed by Defendants Rist and Drenik forwards three arguments in the alternative (1) to dismiss for lack of personal jurisdiction, (2) to compel arbitration, or (3) to dismiss for failure to state a claim. Prosper concedes personal jurisdiction but moves in the alternative to compel arbitration or to dismiss for failure to state a claim.

II. Defendants Rist and Drenik's Motion to Dismiss For Lack of Personal Jurisdiction

A. Legal Standard

An action against a party over whom the Court lacks personal jurisdiction must be dismissed. See Fed. R. Civ. P. 12(b)(2). At this early stage of the litigation, and without the benefit of an evidentiary hearing, Plaintiff has the burden of establishing only a prima facie case of personal jurisdiction. See uBID, Inc. v. GoDaddy Group, Inc., 2010 WL 3768075, *1 (7th Cir. Sept. 29, 2010). When determining whether a plaintiff has met his burden, jurisdictional allegations pleaded in the complaint are accepted as true unless proved otherwise by defendants' affidavits or exhibits. See Purdue Research Foundation v. Sanofi-Sythelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003); Travelers Cas. & Sur. Co. v. Interclaim (Bermuda) Ltd., 304 F. Supp. 2d 1018, 1021 (N.D. Ill. 2004).

Under Illinois law, a court may exercise personal jurisdiction over a non-resident through

operation of its long-arm statute. See 735 ILCS § 5/2-209. That statute extends personal jurisdiction over claims that arise out of a number of enumerated actions and activities, including transacting any business or committing a tort in Illinois. See 735 ILCS § 5/2-209(a)(1-2). In addition, personal jurisdiction is proper against any person "doing business" within Illinois. 735 ILCS § 5/2-209(b). Finally, the long-arm statute's "catch-all" provision authorizes courts to exercise jurisdiction on any basis permitted by the Illinois or federal Constitutions. 735 ILCS § 5/2-209(c). The Seventh Circuit has opined that "there is no operative difference between the limits imposed by the Illinois Constitution and the federal limitations on personal jurisdiction." Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 715 (7th Cir. 2003).

The federal test for personal jurisdiction under the Due Process Clause of the Fourteenth Amendment authorizes a court to exercise jurisdiction over a non-resident defendant only if the 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.'" Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1940) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). "[I]t is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253 (1958). This "purposeful availment" requirement of the minimum contacts standard ensures that a non-resident defendant will not be forced to litigate in a jurisdiction as a result of random contacts with the forum or the unilateral activity of the plaintiff. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474-75 (1985).

In addition, the Supreme Court has distinguished two types of personal jurisdiction: general and specific. Helicopteros Nacionales de Columbia v. Hall, 466 U.S. 408, 414-416 (1984); see also Hyatt Int'l, 302 F.3d at 713. General jurisdiction exists where the defendant has "continuous and systematic" contacts with the forum state. Helicopteros, 466 U.S. at 416; Hyatt Int'l, 302 F.3d at 713. If such contacts exist, "the court may exercise personal jurisdiction over the defendant even in cases that do not arise out of and are not related to the defendant's forum contacts." Hyatt Int'l, 302 F.3d at 713. On the other hand, specific jurisdiction is more limited and a plaintiff in such circumstances must ...

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