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Ace Hardware International Holdings, Ltd. As Assignee of v. Masso Expo Corp. and Caguas Lumber Yard

October 25, 2011


The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge:


Before the Court is Defendants Masso Expo Corporation and Caguas Lumber Yard, Inc.'s Motion to Dismiss the Verified Complaint for Lack of Personal Jurisdiction or, in the Alternative, to Transfer the Action.*fn1 For the following reasons, the Court denies Defendants' motion.


I. The Parties

Plaintiff Ace International Holdings Ltd. ("Ace International"), is a foreign corporation organized under the laws of Bermuda. (R. 1-1, Compl. ¶ 2.) Ace International is a subsidiary of Ace Hardware Corporation ("Ace Hardware"), a Delaware corporation having its principal place of business in Oak Brook, Illinois. (Id.) Ace Hardware currently acts as the billing and collection agent for Ace International. (Id.)

Defendants Masso Expo Corporation ("Masso") and Caguas Lumber Yard, Inc. ("Caguas") are corporations organized under the laws of the Commonwealth of Puerto Rico, and they currently own and operate several retail hardware stores there. (Id. ¶ 3; R. 19-1, Masso Decl. ¶ 3.)*fn2 Defendants entered into a series of Ace Hardware Membership Agreements ("Membership Agreements") with Ace Hardware, which Plaintiffs attached to the Complaint as Exhibits A and B. (Id.)

On or about January 2, 2011, Defendants became shareholders in Ace International. (Compl. ¶ 4.) At that time, Ace Hardware, Ace International and Defendants entered into a series of Assignment and Amendment Agreements ("Assignment Agreements"), which Plaintiffs attached to the Complaint as Exhibits C and D. (Id.) Pursuant to the Assignment Agreements, Ace Hardware transferred its rights and obligations under the Membership Agreements to Ace International. (Id.) Among the rights transferred was the right to all accounts receivable that Defendants allegedly owe to Ace Hardware. (Id.) Ace International retailers currently purchase merchandise from Ace Hardware and continue to receive most of the benefits of Ace Hardware's co-op, but they no longer own shares of Ace Hardware. (R. 36-2, Ting Decl. ¶ 7.*fn3

Plaintiff sued Defendants on April 28, 2011 in the Circuit Court of the Eighteenth Judicial Circuit, DuPage County, Illinois alleging that Defendants breached the Membership Agreements by failing to pay for merchandise, supplies, and services it received from Ace Hardware. (Compl. ¶¶ 6-19.) Although Ace International was not initially a party to the Membership Agreements, it assumed the right to collect Ace Hardware's alleged obligations from Defendants and therefore is the Plaintiff in this case. (Id. ¶¶ 20-21.) On June 9, 2011, Defendants removed the case to federal court. (R. 1, Notice of Removal.)

II. Ace Hardware's Corporate Structure

Ace Hardware operates as a cooperative that purchases merchandise in bulk and allows its individual members to purchase merchandise in smaller quantities to save money. (Ting Decl. ¶ 3.) Ace is wholly-owned by its independently-operated store owners. (Id. ¶ 4.) No shares of Ace Hardware's stock are publicly-traded. (Id.) When a retailer affiliates with Ace Hardware, it purchases shares of company stock and receives voting rights in the cooperative. (Id.)Ace Hardware's Board of Directors has between nine and twelve director positions, and a minimum of eight of the directors are Ace Hardware retailers. (Id. ¶ 5.)Ace Hardware has held annual meetings in Illinois, in accordance with its by-laws. (Id. ¶ 13(c)).

Ace Hardware's world-wide headquarters are located in Oak Brook, Illinois. (Id. ¶ 6.) Ace also has an office in Woodridge, Illinois, a warehouse in Princeton, Illinois, and paint plants in Matteson, Illinois and Chicago Heights, Illinois. (Id.)

III. Defendants' Relationship with Ace Hardware and Contacts with Illinois

In 1987, Caguas had its first contact with Ace Hardware at a trade show in St. Louis, Missouri, after which it executed its first Membership Agreement with Ace Hardware. (Masso Decl. ¶ 4.) Since that time, Defendants have executed several Membership Agreements with Ace Hardware. (Id.) Defendants became Ace Hardware's sole and exclusive distributors of Ace products in Puerto Rico. (Id.)

When Defendants decided to open a new store, they submitted to Ace Hardware in Illinois a written application for membership. (Ting Decl. ¶ 12 and Attachment C.) All negotiations between Ace Hardware and Defendants related to the Membership Agreements occurred in Puerto Rico. (Masso Decl. ¶ 5.) Defendants signed the Membership Agreements in Puerto Rico. (Id. ¶ 6.) Ace Hardware signed some of the agreements in Puerto Rico, and at other times it signed them in counterparts by have the agreement delivered to it in Illinois. (Id.)

The Membership Agreements provide as follows:*fn4

...the Dealer [Masso] shall be deemed to have consented and agreed that:

(a) all provisions of this Agreement shall be interpreted and construed in accordance with the laws of Illinois; and

(b) any suit brought by the Company [Ace] against [Masso] to enforce any provision of this Agreement or seeking any relief in connection with or arising out of the relationship between [Ace] and [Masso] may be instituted in an appropriate court in the state of Illinois unless institution of such suit in Illinois is prohibited by the laws of the jurisdiction in which the licensed location is located.

See, e.g., Compl. at Exhibit A, Membership Agreement between Caguas Lumber Yard, Inc. and Ace Hardware. Caguas signed a Guaranty of Credit, guaranteeing Masso's financial obligations to Ace Hardware, which was addressed to Ace Hardware in Illinois. (Ting Dec. ¶ 13(b) and Attachment F.)

When a new retailer first joins the cooperative and when it opens a new store, it signs a subscription agreement with Ace Hardware to purchase a certain number of shares of Ace Hardware's stock. (Ting Decl. ¶ 10.) Ace Hardware administers "all aspects" of its stock from Illinois. (Id.) Ace Hardware's tax, accounting, and treasury departments in Illinois oversee Ace Hardware's stock. (Id.) During 2010, Defendants owned more than two million dollars' worth of Ace Hardware's stock. (Id. ¶ 8.) At some point before 2010, Defendants sold several of their stores to Home Depot, and Ace Hardware redeemed approximately $1,587,208 in Ace Hardware stock from Defendants. (Id.) Pursuant to the subscription agreements between Ace Hardware and Defendants, Defendants agreed to pay the stock price "at the principal office of Ace Hardware Corporation located at 2200 Kensington Court, Oak Brook, Illinois." (Id. ¶ 10 and Exhibit A.) In addition, the subscription agreements state that they were agreed to in "Oak Brook, Illinois." (Id.)

Defendants incurred more than 99 percent of their outstanding balance at issue in the Complaint with Ace Hardware. (Ting Decl. ¶ 7.) The Membership Agreement provides that "[a]ll orders for merchandise, supplies and services placed by [Defendant] pursuant to this Agreement shall be transmitted to [Ace Hardware] at [its principal office in Illinois]." (Id. (citing Membership Agreement at Article V, Section I).)

It is undisputed that Defendants purchased "millions of dollars" in paint directly from Ace Hardware's paint plant in Illinois, and Ace Hardware provided private-labeled Masso brand paint for Defendants. (Ting Decl. ¶ 14.) Defendants ordered millions of dollars in merchandise each year from Ace Hardware, and these orders were transmitted to Illinois. (Id.) According to Plaintiff, Defendants typically purchase merchandise in one of two ways: 1) directly from Ace's domestic warehouse; or 2) ordering product directly from vendors (e.g., "drop ship orders). (Ting Decl. ¶ 13(d).) According to Plaintiff, Defendants' merchandise orders come through "ACENET," which is an electronic computer system administered in Illinois. (Id. ¶ 14.) With a drop ship order, the vendor ships the product directly to Defendants, but submits the bill to Ace Hardware in Illinois. (Id.) Defendants, on the other hand, state that they currently order and receive products from Ace Hardware's plant in Loxley, Alabama and that they previously ordered and received products from Ace Hardware's distribution center in Tampa, Florida. (Masso Decl. ¶ 7 and Attachment 1.*fn5 ) Plaintiff agrees that the actual merchandise Defendants receive is physically shipped from a warehouse outside of Illinois, but states that the shipments are only made once Ace Hardware's employees in Illinois authorize them. (Ting Decl. ¶ 14.) All inventory management and replenishment occurs in Illinois. (Id.)

Ace Hardware provided retail support to Defendants from its regional offices in Florida. (MassoDecl.¶ 8 and Attachment 2.) During 1997 and 1998, Ace Hardware assigned Mr. Angel Garcia as Ace Hardware's representative and support contact for Masso's operations. (Id. ¶ 10.) Mr. Garcia resided in Puerto Rico during that time. (Id.) At other times, Ace Hardware assigned its regional managers working out of Miami, Florida to Puerto Rico. These regional managers periodically visited Puerto Rico and directly gave support to Masso's retail operations there. (Id. ¶ 13.)

Ace Hardware customarily provided training programs for Masso's personnel. (Masso Decl. ¶ 14.) Defendants aver that "substantially all" of those seminars took place in Puerto Rico or in cities outside of Illinois. (Id. and Attachment 4.) It is undisputed that Defendants' representatives attended at least two Ace Hardware training programs in Illinois--one in July 2005 and one in September 2007. (Ting Decl. ¶ 25.)

Defendants received substantial profits from Ace Hardware in the form of "patronage dividends." (Ting Decl. ¶ 11.) Patronage dividends consist of Ace Hardware stock, interest-bearing notes ("Patronage Certificates"), and cash. (Id.) The amount Ace Hardware paid to each retailer is based upon the amount of merchandise the retailer purchases through Ace Hardware during the year prior. (Id.) The Patronage Certificates are identified as being issued in Oak Brook, Illinois, and they bear the signature of two Ace Hardware officers, both of whom work in Illinois. (Id.) Defendants currently have $188,984.59 in outstanding Patronage Certificates. (Id.) Ace Hardware's Illinois offices manage everything related to Defendants' Patronage Certificates. (Id.)

Ace Hardware employees conducted weekly and monthly meetings in Illinois regarding how much Defendants could order on credit with Ace Hardware given Defendants' financial problems. (Ting Decl. ΒΆ 15.) Ace Hardware employees in Illinois performed credit checks on Defendants in Illinois. (Id.) Ace Hardware prints billing ...

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