United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION & ORDER
M. ROWLAND UNITED STATES DISTRICT JUDGE
Hostforweb Incorporated (“Plaintiff”) filed suit
against Defendants Cloud Equity Group SIM LLC, Cloud Equity
Group SPG LLC, Cloud Equity Investors, LLC, Cloud Equity
Group, LLC, Sean Frank (“Frank”), and
OCI-HostForWeb, LLC (“OCI”) (collectively
“Cloud Equity Defendants”), and Defendants Mohan
Nadarajah (“Mohan”), Ray Rajan
(“Rajan”), and Host-For-Web, Inc. (“HFW,
Inc.”) for breach of contract, fraud and civil
conspiracy. The Defendants move to dismiss with prejudice
under Rule 12(b)(3) for improper venue. Cloud Equity
Defendants also move to dismiss under Rule 12(b)(2) for lack
of personal jurisdiction. For the following reasons,
Defendants' motions to dismiss under Rule 12(b)(3), (Dkt.
8), (Dkt. 10) (Dkt. 18), are granted without prejudice.
following facts are alleged in Plaintiff's Complaint and
are presumed true for the purpose of resolving the pending
motions. HFW, Inc., a Delaware company, purchased the assets
of Plaintiff, an Illinois company, pursuant to an Asset and
Stock Purchase Agreement which was executed on August 29,
2014. Mohan and Ray, both residents of Canada and directors
of HFW, Inc., had authority to conduct business and execute
transactions on behalf of HFW, Inc. A Promissory Note was
executed and delivered on August 29, 2014 in the amount of
$1, 550, 00 from HFW, Inc. to Plaintiff. To secure the
Promissory Note, HFW, Inc. granted Plaintiff a security
interest in all the assets transferred in the Asset and Stock
Purchase Agreement and pledged all outstanding and issued
shares of stock in HFW, Inc., through a Share Pledge
December 14, 2016, Plaintiff filed suit in the Circuit Court
of Cook County, Chancery Division against HFW, Inc., Ray and
Mohan claiming they failed to make payments under the
Promissory Note. Plaintiff exercised its right to take
ownership of all outstanding and issued shares of HFW, Inc.
pursuant to the Share Pledge Agreement. On January 26, 2017,
Plaintiff and the defendants to the state court litigation
signed a Litigation Stay Agreement to allow the HFW, Inc.,
time to find a third-party buyer.
Equity Group”, collectively consisting of Cloud Equity
Group SIM LLC; Cloud Equity Group SPG LLC, Cloud Equity
Investors, LLC, and Cloud Equity Group, LLC, all citizens of
New York, was secured as a buyer. Frank, a citizen of
Delaware, was the authorized representative of Cloud Equity
Group. Frank and Cloud Equity Group formed OCI, a Delaware
limited liability company, to purchase the assets of HFW,
Inc. The purchase was accomplished through an Asset Purchase
Agreement (“APA”) executed on March 23, 2017.
case Plaintiff alleges that Ray, Mohan, Frank and Cloud
Equity Group represented to Plaintiff that the APA defined
term “Target Annual Revenue” would “mean
and contain the actual annualized revenue of active service
at close for HFW [Inc.].” (Dkt. 1 at ¶19). The
Complaint further alleges that on November 10, 2017, Ray
confirmed to Plaintiff that “the actual and historical
annualized revenue at active service at close was $3, 603,
000.00.” (Dkt. 1 at ¶21). The Complaint explains
that the “final draft of the APA, signed by Frank, Ray
and Mohan, which Plaintiff's counsel had never previously
approved, defined Target Annual Revenue as meaning $3, 603,
000.00.” (Dkt. 1 at ¶22, citing APA).
alleges that based on these representations, Plaintiff and
HFW, Inc., resolved the issues in the prior litigation
through a Settlement Agreement, allowing Ray and Mohan to
sell the assets of HFW, Inc. to the Cloud Equity Group.
Plaintiff alleges that it has since discovered that
“the actual and historical revenue was between 10% and
20% lower” than the Target Annual Income. (Id.
¶25). According to Plaintiff the Target Annual Income
was artificially inflated in the APA to defraud Plaintiff.
Moreover, OCI and Cloud Equity Group failed to make the final
payment “even using the fictitious Target Annual
Revenue.” (Dkt. 1 at ¶28).
January 4, 2019, Plaintiff filed suit in this Court claiming:
(1) breach of contract against Cloud Equity Defendants for
failing to fulfill their obligations pursuant to the APA; (2)
fraud against all Defendants for fraudulently increasing the
Target Annual Revenue to induce Plaintiff to release its lien
on shares of stock and to enter into a Settlement Agreement
in the prior litigation; and 3) conspiracy against the
Defendants for entering into the APA to deliberately mislead
Plaintiff about the actual and historical annualized revenue
of active service at close being $3, 603, 000.00.
move to dismiss Rule 12(b)(3) for improper venue because the
forum selection clause contained in the APA requires that any
litigation arising under it be brought in Delaware. (Dkt. 17
at 2; Dkt. 18 at 2; Dkt. 21 at 1). Cloud Equity Defendants
also move to dismiss under Rule 12(b)(3) for lack of personal
jurisdiction arguing that Plaintiff “fails to allege
any facts establishing personal jurisdiction over the Cloud
Equity Defendants.” (Dkt. 17 at 2).
argue that because Plaintiff alleges it is a “direct
third-party beneficiary of the APA, ” Plaintiff is
bound by the forum selection clause in the APA, which
requires that any litigation arising under the APA must be
brought in Delaware. (Dkt. 8 at 2; Dkt. 10 at 2)
(citing Dkt. 1, ¶30). Plaintiff argues that it
is not bound to the forum selection clause in the APA because
(1) it is not a party to the APA; and (2) the forum selection
clause in the Settlement Agreement, signed by all parties, is
Illinois. (Dkt. 21 at 2).
Rule of Civil Procedure 12(b)(3) permits dismissal for
improper venue. “A lack of venue challenge, based upon
a forum-selection clause, is appropriately brought as a Rule
12(b)(3) motion to dismiss.” Continental Ins. Co.
v. M/V Or-sula, 354 F.3d 603, 606-607 (7th Cir. 2003)
(citations omitted). Under Rule 12(b)(3), the court must take
all allegations in the complaint as true. Deb v. Sirva,
Inc., 832 F.3d 800, 809 (7th Cir. 2016). When a
defendant challenges venue under Rule 12(b)(3), Plaintiff
bears the burden of showing that venue is proper. Retreat
Properties, LLC v. KA Designworks Inc., No. 17 C 5608,
2018 WL 4339378, at *8 (N.D. Ill. Sept. 11, 2018).
operative documents in this case, the Settlement Agreement
and the APA, contain two different choice of forum
selections, Illinois and Delaware, respectively. The
governing law clause in the Settlement Agreement states:
“This Agreement will be governed by the laws of the
State of Illinois and the dispute shall be determined by
… a Court of competent jurisdiction in the State of
Illinois.” (Dkt. 21, Ex. 1 at 6). The APA, on the other
hand, contains a forum selection clause which requires the
parties to “submit to the jurisdiction of the courts of
the State of Delaware or the courts of the United States
located in ...