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Schroder v. Teufel

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

November 20, 2017

MARK E. TEUFEL, Defendant.


          AMY J. ST. EVE, United States District Judge

         On September 13, 2017, Plaintiff Lone Fonss Schroder filed an Amended Complaint for Declaratory Judgment and Permanent Injunction in relation to a pending arbitration proceeding brought by Defendant Mark Teufel. Before the Court is Teufel's motion to dismiss for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3). In the alternative, Teufel moves to dismiss under Rule 12(b)(7) arguing that Schroder has failed to join a necessary party to this lawsuit. For the following reasons, the Court grants Teufel's motion to dismiss for improper venue under Rule 12(b)(3) and stays this litigation pending arbitration. See Halim v. Great Gatsby's Auction Gallery, Inc., 516 F.3d 557, 561 (7th Cir. 2008) (“the proper course of action when a party seeks to invoke an arbitration clause is to stay the proceedings rather than to dismiss outright.”). Accordingly, the Court need not reach Teufel's alternative motion under Rule 12(b)(7), and thus denies this aspect of the present motion as moot.


         A motion under Rule 12(b)(3) for improper venue is the appropriate procedure when a litigant seeks to dismiss a lawsuit based on an arbitration agreement. See Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 809-10 (7th Cir. 2011). Under Rule 12(b)(3), district courts may consider materials outside the pleadings, such as the parties' arbitration agreement. See id.; Cont'l Cas. Co. v. Am. Nat. Ins. Co., 417 F.3d 727, 733 (7th Cir. 2005) (“Under Rule 12(b)(3), the district court was not obligated to limit its consideration to the pleadings nor to convert the motion to one for summary judgment”). As the Seventh Circuit instructs, “Rule 12(b)(3) is a somewhat unique context of dismissal in that a court may look beyond the mere allegations of a complaint, and need not view the allegations of the complaint as the exclusive basis for its decision.” Deb v. SIRVA, Inc., 832 F.3d 800, 809 (7th Cir. 2016).


         In this lawsuit, Schroder seeks a declaration that the arbitration agreement at issue is defective in its formation, and therefore never existed. Specifically, in her Amended Complaint, Schroder, a citizen of Denmark, alleges that this dispute involves a purported arbitration clause in the parties' joint enterprise agreement (“JEA”) between Schroder and Martin Hagedorn on one side and an entity called RFC Capital Partners Holdings, LLC (“RFC”) on the other. (R. 9, Am. Compl. ¶ 5.) Schroder further alleges that the JEA described RFC as “a merchant banker having approximately 30 years of experience in acquiring and financing businesses.” (Id.; R. 9-1, JEA, at 2.) The JEA also states that “RFC maintains co-investment partnerships with leading Private Equity firms[.]” (Am. Compl. ¶ 5; JEA ¶ D.) Defendant Teufel signed the JEA on behalf of RFC as its Managing Partner. (Am. Compl. ¶¶ 5, 12; JEA, at 4.) According to the JEA - RFC, Schroder, and Hagedorn would work together to consummate a transaction involving the acquisition of an equity stake - worth approximately $400 million - in a Danish Bank called Saxo Bank. (Am. Compl. ¶¶ 6, 15.) The terms of the JEA include that the parties agreed to share fees and equity received pursuant to a transaction involving Saxo Bank and any of RFC's co-investment partners. (Id. ¶ 6; JEA ¶ 2.) More specifically, RFC would receive 70% of any cash fees and 30% of any equity interests received, whereas Schroder and Hagedorn would receive the remaining 30% cash fees and 70% of any equity interests. (Am. Compl. ¶ 6; JEA ¶ 2.) The arbitration clause at issue reads as follows:

Law and Jurisdiction. This Agreement shall be governed by the laws of the State of Delaware. Any controversies that might arise between the parties shall be settled by binding arbitration held before an arbitrator appointed by the American Arbitration Association in the City of Chicago.

(JEA ¶ 8.)

         Further, Schroder alleges that at the time the parties signed the JEA containing the arbitration clause at issue, RFC was not organized as an LLC or corporation under the laws of Illinois. (Am. Compl. ¶ 8.) Schroder thereby contends that because RFC was not organized as an LLC, it lacked the capacity to enter into the JEA that contained the arbitration clause. (Id. ¶ 9.) Also, Schroder explains that she has not sued RFC in the present lawsuit because it does not have the capacity to sue or be sued. (Id.)

         Before Schroder filed this lawsuit, RFC and Teufel sent an arbitration demand to her on July 11, 2017 alleging that she breached her contractual and fiduciary duties owed under the JEA. (Id. ¶ 12.) According to the arbitration demand, Schroder secretly worked behind RFC's and Teufel's back to consummate a transaction with a buyer of Saxo Bank's stock without including RFC, Teufel, and Hagedorn in the deal. (Id., R. 9-3, Demand, ¶ 2.) On August 3, 2017, an attorney with the AAA sent a confirmation letter to the parties after an administrative conference call with counsel concerning the arbitration proceeding Case Number: 01-17-0004-0752. (R. 15-3, 8/3/17 Letter.) The August 3 letter unequivocally states:

The parties have confirmed their agreement to have the American Arbitration Association/International Centre for Dispute Resolution (AAA/ICDR) fully administering the procedure under reference and further confirmed that the current AAA's Commercial Arbitration Rules, including their Large Complex Commercial Disputes, shall apply to this matter.

(8/3/17 Letter, at 2.) In her response to the present motion, Schroder admits that, “[n]o later than August 3, 2017, counsel to Plaintiff agreed with counsel to Defendant that the American Arbitration Association's (“AAA”) Commercial Arbitration Rules, including the rules pertaining to Large Complex Commercial disputes, would apply[.]” (R. 18, Pl.'s Resp., at 3-4.) The August 3 letter also set certain deadlines for the arbitration proceeding, including a deadline of August 17, 2017 to select a sole arbitrator and a September 7, 2017 deadline for Schroder to file an Answering Statement. (8/3/17 Letter, at 2.)

         On September 7, 2017, Schroder filed her Answer in the pending arbitration seeking to stay the arbitration proceedings until the resolution of this federal lawsuit. (R. 15-5, Answer.) There is no indication from the record whether the agreed-upon Arbitrator, former U.S. District Court Judge Wayne Andersen, has granted Schroder's motion to stay. According to Teufel, on September 29, 2017, RFC and he filed a motion for leave to ...

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