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St George Investments LLC v. Quamtel, Inc.

United States District Court, N.D. Illinois, Eastern Division

March 3, 2014

ST GEORGE INVESTMENTS LLC, an Illinois limited liability company, Plaintiff,
QUAMTEL, INC., a Nevada corporation; and TRANSFER ONLINE, INC., an Oregon corporation Defendants.


ROBERT M. DOW, Jr., District Judge.

Before the Court is a motion to dismiss for lack of personal jurisdiction [25], filed by Defendant Transfer Online, and a motion to dismiss for failure to state a claim [27], filed by Defendants Transfer Online and QuamTel. For the reasons stated below, the motion to dismiss for lack of personal jurisdiction [25] is granted. The motion to dismiss for failure to state a claim [27] is granted in part and denied in part.

I. Background[1]

On January 29, 2013, Plaintiff St George Investments LLC ("St George") filed the first amended complaint ("FAC") at issue here against QuamTel, Inc. ("QuamTel") and Transfer Online, Inc. ("Transfer Online"). St George alleges that it acquired a promissory note ("the purchased note") from QuamTel for $422, 000 on December 31, 2010.[2] FAC ¶ 9; Ex. A Exchange Agreement Mar. 30, 2012. On April 1, 2012, St George and QuamTel entered into an exchange agreement, pursuant to which St George exchanged the promissory note for a new convertible promissory note ("the exchanged note") in the principal amount of $465, 000. FAC ¶ 10. As set forth in the exchange agreement, QuamTel agreed to pay all amounts due under the exchanged note on or before September 30, 2012. FAC ¶ 11. In conjunction with the exchanged note, QuamTel issued an irrevocable instruction ("the transfer instruction" or "the instruction") to its transfer agent, Transfer Online. FAC ¶ 12. According to Plaintiff, the transfer instruction obligated Transfer Online to issue QuamTel common stock to St George if St George presented a properly completed conversion notice to Transfer Online. FAC ¶ 14. In that event, the transfer instruction required Transfer Online to issue the common stock within three trading days and specified that Transfer Online was to ignore any instruction to the contrary that it may receive from QuamTel. FAC ¶ 14. The transfer instruction also stated that any delay in issuing the common stock could result in economic harm to St George. FAC ¶ 16.

Plaintiff alleges that QuamTel failed to pay the amounts due under the exchanged note, FAC ¶ 17, which prompted Plaintiff to deliver to QuamTel and Transfer Online a conversion notice pursuant to the exchanged note, electing to convert $20, 000 of the exchanged note's balance into shares of QuamTel common stock ("the conversion shares"). FAC ¶ 18. QuamTel and Transfer Online, however, failed to deliver the shares. By doing so, Plaintiff argues, QuamTel violated the terms of the exchanged note and both QuamTel and Transfer Online disobeyed the transfer instruction. FAC ¶¶ 19, 20. Plaintiff contends that QuamTel also violated the terms of the exchanged note and transfer instruction when it "interfered with Transfer Online and threatened to change transfer agents in order to avoid issuing the conversion shares." FAC ¶ 21.

St George filed a complaint in this case on November 15, 2012. On January 29, 2013, St George filed a five-count first amended complaint, which Transfer Online now moves to dismiss in its entirety for lack of personal jurisdiction [25]. Both Transfer Online and QuamTel move to dismiss Counts II, III, and V for failure to state a claim [27]. Count I is a breach of contract claim against QuamTel stemming from QuamTel's alleged failure to pay the amounts due under the exchanged note. Count II is a breach of contract claim against QuamTel and Transfer Online based on their alleged failure to comply with the transfer instruction, which St George maintains constituted a valid and binding contract to which it was a third-party beneficiary. Count III is an alternative claim for quasi contract, unjust enrichment, and/or quantum meruit that St George asserts against QuamTel in the event that the exchanged note did not constitute an enforceable contract between them. Count IV alleges that QuamTel and Transfer Online violated Article 8 of the Uniform Commercial Code by failing to register the stock transfer of the conversion shares. Count V is a conversion claim against QuamTel and Transfer Online based on their alleged violations of the exchanged note and transfer instruction.

II. Personal Jurisdiction

A. Background

Rule 12(b)(2) states that an action against a party over whom the Court lacks personal jurisdiction must be dismissed. Fed.R.Civ.P. 12(b)(2). As mentioned, Plaintiff has the burden of establishing a prima facie case of personal jurisdiction. See Steel Warehouse of Wis., Inc. v. Leach, 154 F.3d 712, 714 (7th Cir. 1998). When determining whether Plaintiff has met its burden, jurisdictional allegations pleaded in the complaint are accepted as true unless proved otherwise by affidavits or exhibits. See Purdue Research Found. 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). "[O]nce the defendant has submitted affidavits or other evidence in opposition to the exercise of jurisdiction, the plaintiff must go beyond the pleadings and submit affirmative evidence supporting the exercise of jurisdiction." Purdue, 338 F.3d at 783. The plaintiff is entitled to have any conflicts in the affidavits regarding relevant facts resolved in its favor. Id. at 783.

Plaintiff is a limited liability company whose state of incorporation and principal place of business is Illinois. FAC ¶ 1. Oregon is Defendant Transfer Online's state of incorporation and principal place of business. FAC ¶ 5. In Transfer Online CEO Lori Livingston's declaration, attached to Transfer Online's motion to dismiss, she represents that the company is a registered securities transfer agent for certain publicly traded companies, including QuamTel, that conducts all of its business in Oregon. Livingston Dec. ¶¶ 3, 5. Specifically, Transfer Online conducts all of its securities transfers, physically keeps all stock certificates in a vault, and maintains and services its computer servers in Oregon. Livingston Dec. ¶ 5. According to Ms. Livingston, Transfer Online has never conducted business in Illinois; is not registered to do business in Illinois; maintains no registered agents, employees, or property in Illinois; and no employees have travelled to Illinois on company business. Livingston Dec. ¶¶ 6-8. Transfer Online does not direct any advertising at Illinois residents and none of the publicly traded companies for which it maintains securities accounts are incorporated in Illinois. Livingston Dec. ¶ 8. Moreover, Ms. Livingston represents that Transfer Online has never had "any contracts or customers in Illinois." Livingston Dec. ¶ 6.

Plaintiff disputes two of Ms. Livingston's representations. First, St George refutes that Transfer Online has no "Illinois customers." St George has provided evidence from Transfer Online's website that suggests that Defendant has at least two customers with Illinois business addresses. Second, Plaintiff disagrees that Transfer Online has never "had any contracts" in Illinois. St George contends that the transfer instruction constituted a contract between QuamTel and Transfer Online to which an Illinois citizen (St George) was a third-party beneficiary and, therefore, constitutes an "Illinois contract."

B. Legal Standard

A federal court sitting in diversity in Illinois will have personal jurisdiction over a defendant only if jurisdiction is proper under Illinois's long-arm statute. Citadel Grp. Ltd. v. Wash. Reg'l Med. Ctr., 536 F.3d 757, 760 (7th Cir. 2008). Thus, courts examine three "distinct obstacles to personal jurisdiction:" (1) state statutory law, (2) state constitutional law, and (3) federal constitutional law. See RAR, Inc. v. Turner Diesel Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997). But because the Illinois long-arm statute authorizes personal jurisdiction to the constitutional limit, the analysis "collapse[s] into two constitutional inquiries - one state and one federal." RAR, 107 F.3d at 1276.

The Seventh Circuit has noted 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), despite a cautionary pronouncement in a 1990 Illinois Supreme Court decision suggesting that the state and federal standards may not be co-extensive. See Rollins v. Elwood, 565 N.E.2d 1302, 1316 (Ill. 1990); see also Hyatt Int'l, 302 F.3d at 715 (acknowledging Rollins, but noting that even if the Illinois state and federal due process standards hypothetically might diverge, no basis for such a divergence existed in the case before it). In light of the Seventh Circuit's assessment in Hyatt and the absence of post- Rollins guidance from the Illinois courts as to how Illinois and federal law may differ as a practical matter in regard to personal jurisdiction, a single due process inquiry will suffice. See Hyatt, 302 F.3d at 715; Kostal v. Pinkus Dermatopathology Lab., P.C., 827 N.E.2d 1031, 1037 (Ill.App.Ct. 1st Dist. 2005) (noting that the court had not located any post- Rollins cases finding that federal due process requirements had been met where Illinois due process requirements were not).

The federal test for personal jurisdiction under the Due Process Clause of 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 (1945) (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 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 Colombia v. Hall, 466 U.S. 408, 414-16 (1984); see also uBID, Inc. v. GoDaddy Grp., Inc., 623 F.3d 421, 425-26 (7th Cir. 2010). General jurisdiction exists where the defendant has "continuous and systematic" contacts with the forum state. Helicopteros, 466 U.S. at 416. 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, 302 F.2d at 713.

On the other hand, specific jurisdiction is more limited and a plaintiff in such circumstances must show that the alleged controversy between the parties "arise[s] out of" or "relate[s] to" the defendant's forum contacts in addition to establishing that minimum contacts exist. Id. The defendant's contacts with the forum state must be of a nature and quality such that the defendant has fair warning that it could be required to defend a suit in that forum. Burger King, 471 U.S. at 472. This ensures that jurisdiction over a defendant is "not based on fortuitous contacts, but on contacts that demonstrate a real relationship with the state with respect to the transaction at issue" and that "the defendant retains sufficient, albeit minimal, ability to structure its activities so that it can reasonably anticipate the jurisdictions in which it will be required to answer for its conduct." Purdue Research Found., 338 F.3d at 780. "Notably, it must be the activity of the defendant that makes it amenable to jurisdiction, not the unilateral activity of the plaintiff or some other entity." Id.

Even if the purposeful availment and specific jurisdiction requirements have been met, the Court also must consider whether the exercise of personal jurisdiction comports with "traditional notions of fair play and substantial justice." Burger King, 471 U.S. at 476 (quoting Int'l Shoe, 326 U.S. at 320). "Thus, courts in appropriate cases' may evaluate the burden on the defendant, ' the forum State's interest in adjudicating the dispute, ' the interstate judicial system's interest in obtaining convenient and effective relief, ' the interstate judicial system's interest in obtaining the most efficient resolution of controversies, ' and the shared interest of the several States in furthering fundamental substantive social policies.'" Burger King, 471 U.S. at 477 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980)). These considerations are sometimes used to establish the reasonableness of jurisdiction in lieu of a strong showing of minimum contacts. Burger King, 471 U.S. at 477 (citing Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 780 (1984)).

Finally, because the personal jurisdiction requirement may be waived, a litigant can consent to the jurisdiction of a particular court, either expressly or impliedly. Burger King, 471 U.S. at 472 n.14. "For example, particularly in the commercial context, parties frequently stipulate in advance to submit their controversies for resolution within a particular jurisdiction. Where such forum-selection provisions have been obtained through freely negotiated ...

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