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Scott Dixon and Dixon Hospitality Group, Inc v. Joeleon Holdings

May 4, 2012

SCOTT DIXON AND DIXON HOSPITALITY GROUP, INC., PLAINTIFFS,
v.
JOELEON HOLDINGS, LLP, HARRY HATCHARD, MARGARET HATCHARD, WILLIAM BRUNNER, HARRY MOBRAY, JOELFEIST, RANDALL FEIST AND BARBARA FEIST (AS TRUSTEES OF THE FEIST FAMILY TRUST) AND STEVE FARROH, DEFENDANTS.



The opinion of the court was delivered by: Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER

In Counts I through III of a four count complaint, plaintiffs Scott Dixon ("Dixon") and Dixon Hospitality Group ("DHG") have sued defendants Joeleon Holdings, LLP, Harry Hatchard, Margaret Hatchard, William Brunner, Harry Mobray, Joel Feist, Randall Feist and Barbara Feist (as Trustees of the Feist Family Trust) and Steve Farroh, for breach of an Illinois Limited Partnership Agreement, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. Count IV is a claim for fraudulent inducement against defendant Joel Feist only. Defendants have moved to dismiss for improper venue*fn1 or, in the alternative, to transfer venue to the United States District Court for North Dakota. For the reasons discussed below, that motion is denied.

BACKGROUND

Plaintiffs and defendants are all members of Minot Hotel Properties, LLC (the "LLC"), an Illinois limited partnership created by Dixon to develop a Hilton-franchised hotel in Minot, North Dakota, a rapidly developing real estate market as a result of significant oil reserves discovered nearby. The limited partnership was created by an operating agreement governed by Illinois law and last executed by Scott Dixon on behalf of DHG in Illinois. The company's office, registered agent and principal place of business are all located in Illinois. Under the terms of the operating agreement DHG, held a 41.66% membership interest in the LLC. Dixon was designated manager with "exclusive right to control and manage the Company." That agreement also provided that the non-managing members "shall take no part whatever in the control, management, direction or operation of the Company's affairs and shall have no power to buy the Company."

The complaint essentially alleges that defendants, all of whom are located in Minot except for Randall Feist (who is Trustee of the Feist Family Trust, the beneficiaries of which are all located in Minot), engaged in a scheme to divest DHG of its 41.66% interest in the LLC, by preventing it from making a required capital contribution.

Under the operating agreement, DHG was required to contribute $1 million. According to the complaint, Joel Feist, speaking on behalf of the other non-managing members, agreed that DHG would receive credit for $264,000 it had already invested in the project for various expenses. Feist was to provide the construction loan, but failed to do so. After failing to make arrangements with one local bank, and resisting Dixon's efforts to arrange a loan, Feist ultimately urged Dixon to make arrangements with The Peoples State Bank of Velva (the "Bank"), located in Minot. As Dixon began to make arrangements for DHG to make the required capital contribution, Feist offered to lend DHG the necessary funds, providing that Dixon agreed among other things to make Feist the managing member and to change certain provisions of the operating agreement.

DHG used its own funds and third party sources to make the required $736,000 additional contribution. The Bank issued the construction loan, but then the Bank and the non-managing partners ceased communicating with Dixon or anyone representing DHG. The Bank refused to disperse the construction loan. After dozens of inquiries, the Bank ultimately told Dixon that there was an equity shortfall, but refused to reveal the dollar amount, telling him to discuss it with his partners. Feist, however, told Dixon to talk to the Bank. Feist did suggest that some of the $264,000 in costs that DHG had contributed did not seem to him to constitute equity contributions. Feist then began to pressure DHG to borrow the necessary equity from him, subject to DHG reducing its membership interest and relinquishing management to Feist.

Ultimately, the non-managing members, without notice to plaintiffs, held a meeting and purported to make the unpaid capital contribution pursuant to§ 2.1 of the operating agreement, and assumed DHG's interest in the company.

DISCUSSION

Venue

In an action in federal court based on diversity of citizenship, venue is governed by 28 U.S.C. § 1391(a), which provides for venue: (1) where any defendant resides if all defendants reside in the same state; (2) where a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of the property that is the subject action is situated; or (3) if there is no district in which the action may otherwise be brought, any judicial district in which any defendant is subject to the court's personal jurisdiction. The complaint alleges that venue is proper in the Northern District of Illinois because a substantial part of the events giving rise to the claims occurred here. In their opposition to defendants' motion, plaintiffs also argue that venue is proper because a substantial part of the property that is the subject of the action is situated here.

Defendants argue that venue is proper only in North Dakota because all of the allegedly improper activities occurred there. According to defendants, the claims arise out of Dixon's solicitation of investors in Minot for development and construction of a hotel in Minot, North Dakota. The allegedly improper meeting, as well as the Bank's actions all occurred in North Dakota. Additionally, defendants argue that any communications with Dixon in Illinois that they may have originated, are not sufficiently connected to the claims alleged to support venue in the instant district.

Defendants' argument may establish that certain events giving rise to plaintiffs' claims occurred in North Dakota, but that does not establish that venue is not also proper in Illinois. Venue may be proper in more than one judicial district, and as long as the district in which the action is brought has substantial contacts with the subject matter of the action it "makes no difference that another's are more so, or the most so." Chemical Waste Management, Inc. v. Sims, 870 F.Supp. 870, 875 (N.D. Ill. 1994). "The test is not whether a majority of the activities pertaining to the case were performed in a particular district, but whether a substantial portion of the actions giving rise to the claim occurred in the particular district." Peregrine Fin. Group, Inc. v. Green, 2001 WL 1548965 at *4 (N.D. Ill. Sept. 5, 2009).

The instant case is not about the construction of a hotel in Minot, North Dakota, but the execution in Illinois of a contract creating an Illinois Limited Liability Company, and the breach of that contract. The company was created in Illinois by the execution here of the operating agreement by Dixon on behalf of DHG. The alleged breach was communicated to Dixon by an email to him in the Northern District of Illinois, and to the extent that defendants have usurped power, they now control (or seek to ...


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