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Hepp v. Ultra Green Energy Services LLC

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

November 21, 2016

Curt Hepp, Plaintiff,
v.
Ultra Green Energy Services LLC; CPS Financial, Inc.; Kathy Paskvan; William Paskvan; and Jonathan Payne, Defendants.

          MEMORANDUM OPINION AND ORDER

          Honorable Thomas M. Durkin United States District Judge

         Curt Hepp alleges that Defendants fraudulently transferred funds from Ultra Green Energy Services LLC to prevent him from collecting on a guarantee Ultra Green had executed in Hepp's favor. R. 1. Defendants CPS Financial, Kathy Paskvan, Bill Paskvan, and Jonathan Payne, have moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction. R. 15. For the following reasons, that motion is denied.

         Legal Standard

         “The plaintiff bears the burden of establishing personal jurisdiction when the defendant challenges it.” N. Grain Mktg., LLC v. Greving, 743 F.3d 487, 491 (7th Cir. 2014). On a motion challenging personal jurisdiction, the Court may “receive and weigh” affidavits and other evidence outside the pleadings. See Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). If the Court does not hold an evidentiary hearing to resolve factual disputes, the plaintiff “need only make out a prima facie case of personal jurisdiction.” N. Grain, 743 F.3d at 491. On a motion pursuant to Rule 12(b)(2), the Court will “resolve factual disputes in the plaintiff's favor.” Id. The Court, however, also “accept[s] as true any facts contained in the defendant's affidavits that remain unrefuted by the plaintiff.” GCIU-Employer Retirement Fund v. Goldfarb Corp., 565 F.3d 1018, 1020 n.1 (7th Cir. 2009).

         Background

         Hepp, a resident of Texas, made a loan to M1 Energy Risk Management, LLC, and M1 executed a promissory note in favor of Hepp. R. 1 ¶¶ 1, 4. Ultra Green guaranteed the note. Id. ¶ 1. M1 defaulted on the loan, and Hepp demanded payment on the guarantee from Ultra Green in early 2013, but Ultra Green refused to pay. Id. ¶¶ 1, 17. Hepp brought an action to enforce the guarantee against Ultra Green in this Court on June 27, 2013. See 13 C 4692 (N.D. Ill.). On September 30, 2015, Hepp won a judgment against Ultra Green in the amount of $402, 199. R. 1 ¶ 2.

         Ultra Green is a Delaware LLC that originally had its principal place of business in Illinois. Id. ¶ 5. At the time of its formation, Ultra Green had three members-defendants CPS Financial, and Jay and Cathy Pierce. Id. ¶¶ 12-13; R. 15-1 at 8. CPS-which is solely owned by defendant Kathy Paskvan-held an 80% interest in Ultra Green, and Jay and Cathy Pierce each held a 10% interest. Id. ¶¶ 12-13; R. 15-1 at 8. The Pierces also managed Ultra Green's operations and finances, id. ¶ 13, including its bank accounts and files which, according to Kathy Paskvan, were located in Illinois. See R. 15-1 ¶¶ 20-25. Ultra Green began to wind down its business in October or November 2012, and was no longer doing business by the end of 2012. R. 1 ¶ 14.

         By a purchase agreement effective April 25, 2013, CPS purchased the Pierces' interest in Ultra Green. Id. ¶¶ 18-19. The purchase agreement and the related promissory note provided for jurisdiction and venue in Cook County, Illinois in the event of a dispute. Id. ¶ 19. After the purchase, defendant Jonathan Payne-an Ultra Green employee and minority shareholder, and Michigan resident-became a managing member of Ultra Green. Id. ¶ 9, 23. Kathy Paskvan states in a sworn affidavit that Ultra Green was immediately relocated to Georgia upon CPS's purchase from the Pierces. R. 15-1 ¶ 21. This relocation was accomplished by closing Ultra Green's bank account in Illinois, opening an account for Ultra Green in Georgia, and sending Ultra Green's files from Illinois to Georgia. Id. ¶¶ 21-25. In her affidavit, Kathy Paskvan states that all these events occurred immediately upon the CPS's purchase of the Pierces' interests in Ultra Green, but she also states that Ultra Green's bank account in Illinois was open until at least May 13, 2013, when Cathy Pierce mailed a check from Ultra Green's Illinois bank account to Kathy Paskan. R. 15-1 ¶ 25; R. 16-2 at 2-3. Ultra Green also was not registered as a Georgia limited liability company until July, 11, 2013, and it remained registered as an Illinois limited liability company until July 11, 2014. R. 15-1 ¶ 24; R. 16-5 at 2.

         Hepp alleges that between May 2013 and August 2015, Ultra Green transferred $505, 518.36 to CPS and Kathy Paskvan. R. 1 ¶ 27. Hepp also alleges that Payne received $187, 500 from Ultra Green between May 2013 and April 2014. Id. ¶ 29. During the trial of Hepp's claims against Ultra Green, Kathy Paskvan testified that she also received payments from Ultra Green prior to April 2013. R. 16-2 at 5. Hepp alleges that CPS, Kathy Paskvan, and Payne did no “real work” in consideration for these payments. Id. ¶¶ 25, 27, 30.

         Ultra Green received a payment of $1, 966, 437.08 from the federal government on September 27, 2013, id. ¶ 32, but as of December 31, 2014, Ultra Green had only $471, 216 in its bank accounts. Id. ¶ 35. As of August 31, 2015, Ultra Green's funds were down to $103.54. Id. ¶ 37.

         Hepp alleges that Bill Paskvan controls both CPS and Ultra Green, because his wife Kathy Paskvan knows “little or nothing about the business, and her role [is] that of a nominal owner in name only.” R. 1 ¶¶ 12, 18. According to Hepp “any actions taken by Kathy Paskvan were done on behalf of, and at the direction of, Bill Paskvan.” Id. ¶¶ 23-24. By affidavit in this case, Bill Paskvan admits that Jay Pierce frequently called him “to report on the status of [UItra Green's] business operations.” R. 15-2 ¶ 11. He also admits that “[b]eginning on or after April 25, 2013, [he] advised [Ultra Green] in the liquidation of [its] assets.” Id. ¶ 12. At the trial of Hepp's claims against Ultra Green, Kathy Paskvan testified that Bill Paskvan “kept in touch with Jay Pierce” regarding UItra Green's business, and “[t]hat was all between my husband and Mr. Pierce.” R. 16-4 at 5. She testified that with respect to Ultra Green's affairs, “my husband acted as my representative, ” and “my husband took care of the affairs with [Ultra Green] on my behalf.” Id. at 5. Kathy Paskvan also testified that she did not know whether Ultra Green made a profit between 2007 and 2013 because the “financial statements went to my husband.” Id. at 6. She also testified that she did not understand Ultra Green's business, “[s]o my husband took care of this for me.” Id. at 9.

         Analysis

         “A federal court sitting in diversity, ” as is the case here, “must rely on the law of personal jurisdiction that governs the courts of general jurisdiction in the state where the court is sitting.” Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 713 (7th Cir. 2002). Illinois law permits its courts to exercise jurisdiction over a person to the extent permitted by the Constitution. See N. Grain, 743 F.3d at 491 (citing 735 ILCS 5/2-209(c)). The Supreme Court has held that under the Due Process Clause of the Fourteenth Amendment a “forum state's courts may not exercise personal jurisdiction over a nonconsenting, out-of-state defendant unless the defendant has ‘certain minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'” Id. at 492 (quoting Int'l Shoe Co. v. State of Washington, Office of Unemployment Comp. & Placement, 326 U.S. 310, 319 (1945)). “If the defendant has ‘continuous and systematic' contacts with a state, the defendant is subject to general jurisdiction there in any action, even if the action is unrelated to those contacts.” N. Grain, 743 F.3d at 492 (quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416 (1984)). “To support an exercise of specific personal jurisdiction, the defendant's contacts with the forum state must directly relate to the challenged conduct or transaction.” N. Grain, 743 F.3d at 492; see also Walden v. Fiore, 134 S.Ct. 1115, 1121 (2014) (“The inquiry whether a forum State may assert specific jurisdiction over a nonresident defendant focuses on the relationship among the defendant, the forum, and the litigation.”). By contrast, “[s]pecific personal jurisdiction is appropriate where (1) the defendant has purposefully directed his activities at the forum state or purposefully availed himself of the privilege of conducting business in that state, and (2) the alleged injury arises out of the defendant's forum-related activities.” N. Grain, 743 F.3d at 492 (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985)). “The exercise of specific jurisdiction must also comport with traditional notions of fair play and substantial justice.” N. Grain, 743 F.3d at 492. In general, “[t]he defendant's conduct and connection with the forum state must be substantial enough to make it reasonable for the defendant to anticipate that he could be haled into court there.” Id. (citing Burger King, 471 U.S. at 474).

         I. ...


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