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Best Designs, Inc. v. American Sealants Co., Inc.

United States District Court, Seventh Circuit

August 26, 2013

BEST DESIGNS, INC., DAN SHASTEEN, JIM SHASTEEN, MARK SHASTEEN, and LYNDON FORBY, Plaintiffs,
v.
AMERICAN SEALANTS COMPANY, INC., JON C. WERNETTE, individually and as co-administrator of the Estate of C. Michael Wernette, JEAN WERNETTE, individually and as co-administrator of the Estate of C. Michael Wernette, MONICA WERNETTE, individually and as co-administrator of the Estate of C. Michael Wernette, AMERICAN SEALANTS NORTH CENTRAL MARKETTING, LLC, WILLIAM MARTIN, and JAMES MICHAEL HALEY, Defendants.

MEMORANDUM and ORDER

David R. Herndon, Chief Judge.

Introduction and Background

Now before the Court are American Sealants Company, Inc. (“ASC”), Jon C. Wernette, and Monica M. Wernette’s motion to dismiss for lack of personal jurisdiction, lack of venue, and dismissal for the sake of judicial economy (Doc. 15) and James Michael Haley’s motion to dismiss for lack of personal jurisdiction, for lack of venue and dismissal for the sake of judicial economy (Doc. 26). Plaintiffs oppose both motions (Docs. 23 & 29). Based on the following, the Court denies the motions.

On September 12, 2012, plaintiffs Best Designs, Inc. (“Best Designs”), Dan Shasteen, Jim Shasteen, Mark Shasteen, and Lyndon Forby filed a seven-count complaint against American Sealants Company, Inc. (“ASC”), Jon C. Wernette, individually and as co-administrator of the Estate of C. Michael Wernette, Jean A. Wernette, individually and as co-administrator of the Estate of C. Michael Wernette, Monica M. Wernette, individually and as co-administrator of the Estate of C. Michael Wernette, American Sealants North Central Marketing LLC, William Martin and James Michael Haley (Doc. 2). The complaint contains claims for copyright infringement (Count I); false advertising under the Lanham Act (Count II); Kansas common law for unfair competition (Count III); violation of the Illinois deceptive trade practices act (Count IV); violation of Arkansas deceptive trade practices act (Count V); tortious interference (Count VI) and breach of contract option agreement (Count VII).

Best Designs is a marketer and distributor of tire sealants based in Caterville, Illinois. Dan Shasteen, Jim Shasteen, Mark Shasteen and Lyndon Forby are Best Designs’ executives. ASC manufactures a tire sealant called “AmerSeal.” ASC is based in Clay Center, Kansas.

From 1990 to May 2012, Best Designs was in an exclusive marketing arrangement (“Exclusive Marketing and Sales Agreement”) with ASC. Under the agreement, Best Designs had the exclusive right to market and sell ASC’s products throughout the world. When a customer wished to purchase AmerSeal, the customer placed its order with Best Designs. Best Design would send a purchase order to ASC and instruct ASC where to ship the product. ASC would manufacture, package and ship the product to the customer and send an invoice to Best Designs for the product shipped. Best Design would invoice its customers, collect payment and pay ASC. According to the complaint, ASC did not have any other substantial customer except for Best Designs. Since 2005, ASC issued thousands of invoices to Best Designs in Illinois and Best Designs paid ASC millions of dollars for the tire sealant.

In November 2011, C. Michael Wernette, the sole owner of ASC, died. Thereafter, his siblings, Jon C. Wernette, Jean C. Wernette and Monica M. Wernette, were appointed as co-administrators of his estate and took over management of ASC. Shortly thereafter, the relationship between the parties deteriorated.

In May 2012, Best Designs and ASC terminated the Exclusive Marketing and Sales Agreement. Subsequently, Best Designs contracted with another manufacture of tire sealant and began selling the new products under the name, LiquiTube. ASC began contacting Best Designs customers around the world to sell AmerSeal “factory direct” and through independent distributors, including defendants Haley and Martin.

On May 10, 2012, ASC and the Wernettes sued Best Designs, Dan Shasteen, Jim Shasteen, Mark Shasteen, Lyndon Forby, and former ASC employee, Brent Craig, in the Twenty-First Judicial District Court for Clay County, Kansas, 12-CV-16.[1] The Kansas lawsuit contains three counts relating to the parties’ relationship prior to Michael Wernette’s death: (1) declaratory judgment action that the Exclusive Marketing and Sales Agreement was terminated; (2) breach of contract alleging that Best Designs owed ASC for alleged past due invoices; and (3) a declaratory judgment action that an option agreement between Dan Shasteen, Jim Shasteen, Mark Shasteen and Lyndon Forby and C. Michael Wernetter – through which the purchases had a five year option to purchase ASC – was null and void. On June 28, 2012, Best Designs, the Shasteens and Forby filed an answer in the Kansas lawsuit and asserted counterclaims for conversion and unjust enrichment relating to product labels they claim belong to Best Designs. On September 6, 2012, ASC and the Wernettes in the Kansas lawsuit filed a motion to amend their complaint to add LiquiTube Industries, LLC (“LiquiTube”) as a party and to add counts for violations of Kansas common law unfair competition against Best Designs and LiquiTube, violations of the Illinois deceptive trade practices act against Best Designs and LiquiTube, tortious interference against Best Designs and LiquiTube, for breach of fiduciary duty against Best Designs, and for misappropriation of trade secrets against Best Designs and LiquiTube. On October 31, 2012, a day before the hearing on the motion to amend, the Shasteens, Forby and Best Designs removed the Kansas lawsuit to the U.S. District Court for the District of Kansas where it remains.

This case was filed on September 28, 2012 (Doc. 1). The complaint alleges that ASC and its distributors were infringing on Best Design’s copyrights regarding certain product labels previously used and that ASC and its independent distributors were committing acts of unfair competition and falsely advertising, and tortiously interfering with Best Design’s business expectancies. Thereafter, defendants filed the pending motions to dismiss. First, the moving defendants argue that the Court lacks personal jurisdiction because defendants’ contacts with Illinois are insufficient to allow the Court to exercise general jurisdiction, and that plaintiffs have failed to sufficiently plead facts show that the claims actually “relate” or “arise out” of ASC’s contacts with Illinois thereby conferring specific jurisdiction, Defendants argue that Jon C. Wernette, Monica Wernette and Haley have not sold or offered for sale of products in Illinois, nor do they conduct business in Illinois. They maintain that they have very limited to nonexistent contacts with the State of Illinois. Specifically, defendants contend that since the dissolution of the partnership between ASC and Best Designs in May 2012, ASC has had very few contacts with Illinois. Defendants maintain: “In fact, only four customers in Illinois have ordered tire sealant products from ASC and only two of those customers placed an order directly with ASC. The other two customers placed orders with independent sales representatives located outside of Illinois.” Obviously, plaintiffs oppose the motions. As the motions are ripe, the Court turns to the merits of the motions.

Motion to Dismiss Standard

When personal jurisdiction is challenged under Federal Rule of Civil Procedure 12(b)(2), the plaintiff bears the burden of establishing personal jurisdiction over a defendant. Purdue Research Found. v. Sanofi–Syntholabo, S.A., 338 F.3d 773, 782 (7th Cir.2003) (citing Central States, S.E. & S.W. Areas Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 939 (7th Cir.2000)). If the issue of personal jurisdiction is raised by a motion to dismiss and decided on the written materials rather than an evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdictional facts. Id. Thus, the Court must “take as true all well-pleaded facts alleged in the complaint and resolve any factual disputes in favor of plaintiff.” Tamburo v. Dworkin, 601 F.3d 693, 700 (7th Cir. 2010)(citing Purdue Research Found., 338 F.3d at 782).

Under Illinois law, the long-arm statute permits personal jurisdiction over a party to the extent allowed under the due process provisions of the Illinois and United States constitutions. 735 ILCS 5/2–209(c); Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 714 (7th Cir. 2002); Central States, S.E. & S.W. Areas Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 940 (7th Cir. 2000). Therefore, whether the Court has jurisdiction over a defendant depends on whether such jurisdiction is permitted by federal and state constitutional standards.

The Illinois Constitution's due process guarantee, Ill. Const. art. I, § 2, permits the assertion of personal jurisdiction “when it is fair, just, and reasonable to require a nonresident defendant to defend an action in Illinois, considering the quality and nature of the defendant's acts which occur in Illinois or which affect interests located in Illinois.” Rollins v. Ellwood, 141 Ill.2d 244, 152 Ill.Dec. 384, 565 N.E.2d 1302, 1316 (Ill.1990). When interpreting these principles, a court may look to the construction and application of the federal due process clause. Id. In fact, the Seventh Circuit Court of Appeals has suggested that there is no operative difference between Illinois and federal due process limits on the exercise of personal jurisdiction. Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 715 (7th Cir. 2002) (citing RAR, Inc. v. Turner Diesel Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997)). The Court sees nothing in this case indicating that in this particular situation the federal and state standards should reach a different result. ...


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