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Michael Levin v. Nc12

June 29, 2011


The opinion of the court was delivered by: Judge Edmond E. Chang


Plaintiff Michael Levin filed this suit against NC12, Inc. seeking damages that resulted from NC12's alleged breach of contract.*fn1 NC12 moves to dismiss this case pursuant to Federal Rule of Civil Procedure 12(b)(7) for failure to join a necessary party or, alternatively, under Rule 12(b)(3) for improper venue. R. 27. For the following reasons, NC12's motion is granted and this case is dismissed for improper venue.

I.In considering the current motion to dismiss for failure to join a necessary party or, alternatively, for improper venue, the Court accepts the plaintiff's allegations in the complaint as true. Faulkenberg v. CB Tax Franchise, 637 F.3d 801, 804 (7th Cir. 2011); Davis Cos. v. Emerald Casino, Inc., 268 F.3d 477, 479 n.2 (7th Cir. 2001). Plaintiff Michael Levin, an Illinois citizen, is a consultant in the energy industry. R. 1 (Compl.)

¶¶ 3, 9-10. Defendant NC12 is a corporation formed under the laws of the State of Nevada, with its principal place of business in Houston, Texas. Id. ¶ 4. In October 2008, Levin was employed as a consultant for an energy company called Power Holdings of Illinois. Id. ¶ 10.When Texas Syngas, Inc. (TSI), another energy company, sought Levin's consulting services, Levin decided to leave Power Holdings and start working for TSI. Id. ¶¶ 9-12.

In January 2009, Levin and TSI executed a written consulting agreement. Id.

¶ 12. According to the terms of the agreement, in exchange for Levin's services, TSI would pay him $15,000 per month and two-percent of TSI's net profits generated from the sale of synthetic natural gas (SNG) in Illinois. Id. ¶ 14(a), (d). TSI also agreed to assist Levin in collecting $75,000 that Power Holdings owed Levin in past-due consulting fees. Id. ¶ 14(c). If the money was not collected within one year, TSI agreed to pay Levin $75,000 and Levin would assign any and all interest in his claim to this money to TSI. R. 4 (Consulting Agreement, attached as Exh. 1 to Compl.) at 4. Levin would also be responsible for furnishing adequate security to ensure repayment of the $75,000 to TSI in the event it was determined that Levin was not entitled to the money from Power Holdings. Id. Finally, TSI agreed to pay Levin a severance payment of $75,000 if their consulting arrangement was terminated for any reason other than for cause. Compl. ¶ 14(b).

The consulting agreement includes a governing law and mediation/arbitration clause, which provides:

This Agreement shall be governed exclusively by the laws of the State of Texas, disregarding any conflicts of laws rules that might otherwise be applicable. Any dispute arising out of [Levin's] relationship with TSI shall be resolved first, by non-binding mediation in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association then in effect. If such mediation is not successful, than such dispute shall be settled by final, binding arbitration, to be conducted in Houston, Harris County, Texas by a single arbitrator selected by the parties.

R. 4 at 4. The agreement includes a forum selection clauses that states that "[e]ither party may bring suit under the Texas Arbitration Act, as effective on the date appearing below, in the District Courts of Harris County, Texas to enforce arbitration." Id.

Levin and TSI operated under this agreement for several months. Levin performed consulting services for TSI, and TSI made monthly payments of $15,000 to Levin. Compl. ¶¶ 15-16. At various times in 2009, principals at TSI told Levin that the company planned to change its name to NC12, Inc. Id. ¶ 18. Between February 2009 and October 2009, some of the checks Levin received were from TSI, while other checks indicated that they were issued by NC12. Id. ¶ 17. In November 2009, the payments stopped. Id. ¶ 23. Levin complains that he has not received any payments for work done between November 2009 and March 2010. Id. ¶¶ 23, 32. Levin also claims he is owed prorated compensation for the month of January 2009, the $75,000 that was never collected from Power Holdings, and two-percent of the net profits generated from the sale of SNG in Illinois. Id. ¶¶ 24, 32. Levin alleges that NC12 is liable for these outstanding payments because it succeeded TSI under the consulting agreement and/or ratified the contract by accepting the benefit of Levin's work, making payments to Levin pursuant to the contract, and failing to disclose to Levin that NC12 was not just a name change, but a separate entity altogether. Id.¶ 29.

Levin initially attempted to arbitrate this dispute, as required by the contract's mandatory arbitration clause, but NC12 refused to participate in the arbitration process. Id. ¶¶ 25-26. According to the complaint, the president of NC12 responded to Levin's arbitration demand by denying that a contract existed between NC12 and Levin. Id. ¶ 27. Levin consequently filed this lawsuit in March 2010. NC12 moved to dismiss Levin's complaint for lack of personal jurisdiction. R. 14. In October 2010, NC12's motion was denied by the district judge previously assigned to the case. R. 26. Approximately three weeks later, NC12 filed the instant motion to dismiss. R. 27.

II.NC12 first argues that the case should be dismissed pursuant to Rule 12(b)(7) because Levin failed to join TSI as a defendant. R. 27 ¶¶ 7-11. NC12 claims that TSI, a signatory and party to Levin's consulting contract, has rights under the contract that will be affected by the adjudication of this lawsuit. Id. ¶ 9. In response, Levin points out that NC12's president, Michael D. Sydow, submitted a declaration in this case stating that TSI dissolved on June 8, 2009.*fn2 See R. 14-2 ¶ 4. Levin argues that because TSI no longer exists, it does not maintain an interest relating to the subject of this action and does not need to be joined.

"The purpose of Rule 19 is to 'permit joinder of all materially interested parties to a single lawsuit so as to protect interested parties and avoid waste of judicial resources.'" Askew v. Sheriff of Cook County, 568 F.3d 632, 634 (7th Cir. 2009) (quoting Moore v. Ashland Oil, Inc., 901 F.2d 1445, 1447 (7th Cir. 1990)). In deciding whether a party must be joined under Rule 19, courts consider: (1) whether complete relief can be accorded without joinder (Rule 19(a)(1)(A)); (2) whether the absent party's ability to protect its interests in the subject matter of the suit will be impaired (Rule 19(a)(1)(B)(i); and (3) whether existing parties might be subjected to a substantial risk of multiple or inconsistent obligations unless the absent party is joined (Rule 19(a)(1)(B)(ii)). Davis, 268 F.3d at 481 (citing Fed. R. Civ. P. 19(a)(1)).

Here, NC12 argues that TSI must be joined based on the second consideration, namely, Rule 19(a)(1)(B)(i). NC12 claims that TSI possesses certain rights under Levin's consulting contract and allowing this litigation to proceed without TSI may impair or impede TSI's ability protect these rights. R. 27 ¶¶ 7-10. Specifically, NC12 claims that TSI's interests under the contract include confidentiality interests, monetary rights, and property rights. Id. ¶ 9(a)-(c). However, NC12 fails to explain how these interests remain pertinent to TSI post-dissolution. For instance, NC12 argues that in the event NC12 is ordered to pay Levin the $75,000 owed pursuant to the Power Holdings debt but is unable to recover from Power Holdings, Levin would be required to pay $75,000 ...

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