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About U.S. Real Estate, Inc. v. Burnley

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

May 26, 2015

ABOUT U.S. REAL ESTATE, INC., Plaintiff,
v.
CHRISTOPHER BURNLEY and COREFACT CORPORATION, Defendants.

ORDER

JOHN J. THARP, Jr., District Judge.

For the reasons set forth in the Statement below, the defendants' Motion to Dismiss the plaintiff's Third Amended Complaint, Dkt. 43, is granted as to Count I and otherwise denied. Count I of the plaintiff's Third Amended Complaint, Dkt. 41, is dismissed without prejudice. A status hearing is set for June 10, 2015, at 9:00 a.m.

STATEMENT

ABOUT U.S. Real Estate ("ABOUT") filed this action on June 16, 2014, against defendants CoreFact Corporation ("CoreFact") and its principal shareholder, Christopher Burnley. See Dkt. 1. Now before the Court is the defendants' second motion to dismiss the case pursuant to Fed.R.Civ.P. 12. Their first motion to dismiss asserted lack of personal jurisdiction over Burnley, lack of subject matter jurisdiction over one of ABOUT's claims, and failure to state a viable claim as to the other two, under Fed.R.Civ.P. 12(b)(1), (2), and (6), respectively. See Dkt. 17. The current motion seeks to dismiss Counts I and II of ABOUT's Third Amended Complaint ("Complaint" or "Compl.") for improper venue (based on a forum selection clause in the parties' "reseller agreement") pursuant to Fed.R.Civ.P. 12(b)(3), and to dismiss Count I for failure to allege a cognizable claim (though on a ground different from those asserted in the defendants' previous motion) pursuant to Fed.R.Civ.P. 12(b)(6). See Dkt. 43.

In response, ABOUT contends that the defendants' current venue defense was waived under Fed.R.Civ.P. 12(h)(1), and that their current failure-to-state-a-claim argument is precluded under Fed.R.Civ.P. 12(g)(2) and (h)(2), all as a result of the defendants' failure to include these defenses in their first motion to dismiss under Rule 12. The defendants, on the other hand, dispute any such waiver and contend that these new defenses were necessitated by ABOUT's new breach of contract claim in Count II of its current Complaint. Before addressing the parties' respective waiver arguments in connection with this motion, the Court first briefly recounts the procedural history in the case.

I. Procedural Background

ABOUT's original complaint in this action contained three counts: breach of fiduciary duty (Count I), tortious interference (Count II), and declaratory judgment (Count III). See Dkt. 1. After the Court directed ABOUT to supplement its allegations regarding diversity jurisdiction, see Dkt. 4, an Amended Complaint followed on June 18, 2014, asserting the same three claims. See Dkt. 5. In broad terms, ABOUT's Amended Complaint alleged that Ray Sheppard and Gary Abrams formed ABOUT to provide marketing services in the real estate industry, id. at ¶¶ 7-8, and planned to do so through a business arrangement with Burnley and CoreFact. Id. at ¶ 9.[1]In furtherance of this plan, ABOUT was incorporated in Florida in July of 2010, with Sheppard, Abrams, and Burnley as its original directors, id. at ¶ 10, after which ABOUT and CoreFact entered into a "reseller agreement" that entitled ABOUT to receive various commissions. Id. at ¶¶ 14-15. For a time, the venture looked promising and ABOUT attracted new investors, which it accommodated by issuing new shares; pursuant to a recapitalization agreement, ABOUT and CoreFact's ownership interests in the venture were diluted. Id. at ¶¶ 18-19. The Amended Complaint alleges, however, that "Burnley exercised his control over CoreFact to cause or permit CoreFact to create false business records" used to divert to CoreFact commissions that "ABOUT earned and was entitled to be paid" under the parties' reseller agreement. Id. at ¶ 21. And when ABOUT confronted Burnley with this alleged conduct and requested his resignation as an ABOUT director, "Burnley caused CoreFact to terminate its reseller agreement with ABOUT, without cause and without justification." Id. at ¶¶ 24-26.

Based on these allegations, the Amended Complaint asserted claims for breach of fiduciary duty against Burnley (Count I), tortious interference against Burnley (Count II), and declaratory judgment against CoreFact, alleging that the recapitalization agreement was valid and enforceable (Count III), all of which the defendants moved to dismiss in July of 2014. See Dkt. 17. As noted above, the Court granted that motion in part on October 28, 2014, dismissing Count III for lack of subject matter jurisdiction and Count II for failure to allege a cognizable claim (both without prejudice). See Dkt. 30 at 9. At the same time, the Court denied Burnley's motion to dismiss for lack of personal jurisdiction and the defendants' motion to transfer the case to the Northern District of California pursuant to 28 U.S.C. § 1404(a). Id.

With leave of Court, see Dkt. 30 at 1, ABOUT filed a Second Amended Complaint on November 10, 2014, again asserting claims for breach of fiduciary duty and declaratory judgment, but omitting any claim for tortious interference. See Dkt. 31. The defendants' filed their Answer to the Second Amended Complaint and six Counterclaims by CoreFact-including one for breach of the parties' reseller agreement-on December 8, 2014. See Dkt. 34, at 18-31. Notably for present purposes, the defendants' Answer admitted "that venue is proper with respect to CoreFact, " id. at ¶ 7, and raised no venue defense (among the twelve affirmative defenses asserted), id. at 16-17; CoreFact's Counterclaims likewise alleged that venue "with respect to these Counterclaims is proper in this District." Id. at 18, ¶ 5.[2]ABOUT filed its Answer to CoreFact's Counterclaims on December 29, 2014, similarly admitting that "venue is proper in this District." See Dkt. 36, ¶ 5. But the pleadings did not close here. On January 8, 2015, ABOUT sought, and was granted, leave to amend again. See Dkt. 37.

This latest amendment by ABOUT asserted (without objection by the defendants) what ABOUT contended was a compulsory counterclaim-a claim for breach of the same reseller agreement at issue in Count I of CoreFact's Counterclaims. See Pltf. Opp., Dkt. 51, at 3-4. But rather than file this new claim as a counterclaim to CoreFact's Counterclaims, ABOUT, at the Court's direction, included its new breach of contract claim based on the parties' reseller agreement in an amended complaint (the current Third Amended Complaint) filed on January 15, 2015. See Dkt. 41; Pltf. Opp., Dkt. 51, at 4. ABOUT's Complaint thus now includes claims for breach of fiduciary duty by Burnley (Count I), breach of the reseller agreement by CoreFact (Count II), and declaratory judgment against CoreFact (Count III). See Dkt. 41.[3]

Seizing upon ABOUT's filing of a new complaint (though done at the Court's direction), the defendants responded with a new motion to dismiss all three of ABOUT's claims (not merely new Count II). See Dkt. 43. This motion seeks to dismiss Counts I and II for improper venue (relying on the forum selection clause in the parties' reseller agreement) pursuant to Fed.R.Civ.P. 12(b)(3), to dismiss Count I for failure to state a claim (on a newly asserted ground) pursuant to Fed.R.Civ.P. 12(b)(6), and to dismiss Count III pursuant to the Court's discretion to decline to hear a declaratory judgment claim. Id. In addition, should the Court grant these requests, CoreFact asks that all six of its counterclaims be voluntarily dismissed without prejudice pursuant to Fed.R.Civ.P. 41. ABOUT responds that the defendants waived their venue defense by omitting it from their first Rule 12(b) motion, and that their failure-to-state-a-claim argument against Count I is an improper "successive motion" under Rule 12(b)(6) and therefore prohibited by Fed.R.Civ.P. 12(g)(2) and (h)(2). See Pltf. Opp., Dkt. 51, at 4-9.

For the following reasons, the Court agrees with ABOUT that the defendants waived their venue defense, and the defendants' motion to dismiss Counts I and II of the Complaint pursuant to Fed.R.Civ.P. 12(b)(3) is therefore denied. As explained below, however, the Court agrees with the defendants that Count I of the Complaint fails to allege adequately a claim for breach of fiduciary duty, and therefore dismisses Count I of the Complaint without prejudice.

II. Motion to Dismiss Counts I and II for Improper Venue

The defendants' current venue defense (as opposed to their previous transfer request under 28 U.S.C. § 1404) relies on the following forum selection clause in the parties' reseller agreement: "Any action relating to or arising out of this Agreement shall be brought in the courts of Alameda County, California." See Def. Mot., Dkt. 43, ¶ 1; Compl. Ex. C, Dkt. 41-3, at 6.[4]As the defendants acknowledge, Seventh Circuit precedent requires such a clause to be asserted as "an objection to venue" in a motion under Fed.R.Civ.P. 12(b)(3). Def. Mem., Dkt. 44, at 4; see also Auto. Mech. Local 701 Welfare & Pension Funds v. Vanguard Car Rental USA, Inc., 502 F.3d 740, 746 (7th Cir. 2007). One consequence of treating the assertion of a forum selection clause as a venue challenge under Rule 12(b)(3) is that the issue-like any other venue defense-is "waivable, " since "Fed. R. Civ. P. 12h)(1) provides that improper venue is waived as a ground of dismissal when not timely raised." Id. at 746. And this consequence is not inadvertent. "Venue is primarily a matter of convenience of litigants and witnesses, '" and forum selection clauses "are similar" in that "they represent an ex ante determination by the parties themselves of the place that will be the most convenient for any litigation that may come along." Id. (quoting Denver & Rio Grande W. R.R. Co. v. Brotherhood of R.R. Trainmen, 387 U.S. 556, 560 (1967)). Such matters of convenience "must be pleaded early, " lest they be "waived or ...


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