Horizon Matrix, LLC et al v. Whalehaven Capital Fund, Ltd. et al
Filing
31
MEMORANDUM Opinion and Order Signed by the Honorable Harry D. Leinenweber on 2/3/2012:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
HORIZON MATRIX, LLC and
STEVEN R. ZIELKE,
Plaintiffs,
v.
Case No. 11 C 2655
Hon. Harry D. Leinenweber
WHALEHAVEN CAPITAL FUND, LTD.
and ALPHA CAPITAL ANSTALT,
Defendants.
MEMORANDUM OPINION AND ORDER
Before the Court is the Motion of Defendants, Whalehaven
Capital
Fund,
Ltd.
and
Alpha
Capital
Anstalt,
(hereinafter,
“Whalehaven” and “Alpha”) to dismiss the Complaint on the following
grounds:
lack of subject matter jurisdiction, lack of personal
jurisdiction, improper venue, failure to state a claim upon which
relief can be granted and failure to join a required party.
FED R. CIV. P. 12(b)(1-3, 6, 7).
See
For the reasons stated herein, the
Motion is granted without prejudice because of a lack of personal
jurisdiction. Because there is no personal jurisdiction, the Court
does not address the other procedural and jurisdictional objections
by Defendants.
I.
BACKGROUND
Plaintiff Horizon Matrix, LLC (hereinafter, “Horizon”) is an
Arlington Heights, Illinois company and Plaintiff Steven R. Zielke
(hereinafter, “Zielke”) is its President.
Zielke, on behalf of
Horizon, signed a contract on October 16, 2009 with a struggling
California company, One Voice Technologies, Inc., (“One Voice”) to
help One Voice convince a Chicago patent auctioneer to sell One
Voice’s patent portfolio.
Under the contract, Horizon was to earn
a
fee”
five
percent
“success
if
Horizon
both
convinced
the
auctioneer to sell One Voice’s portfolio and a sale or licensing
ultimately occurred.
The auctioneer did take the portfolio and a
sale ultimately resulted.
Plaintiffs allege One Voice, which is not a party to this
lawsuit, sold its patent portfolio at auction in Chicago for $3
million in July 2010. After the auctioneer took its twenty percent
fee, leaving $2.4 million, Plaintiffs allege they were due five
percent of what remained, or $120,000. Instead, Plaintiffs allege,
the $2.4 million was paid not to One Voice, but rather directly to
Defendants, who were the primary financial backers of One Voice and
were
eager
for
a
return
on
their
investment.
Defendants,
Plaintiffs allege, then passed along to One Voice just $30,000 from
the sale, knowing One Voice still owed money on its consulting
agreement with Plaintiffs and that the retention of the bulk of the
proceeds would deprive Plaintiffs of their “success fee.”.
Pl.’s
Resp., Ex. A ¶11; Pl.’s Resp. 2; Compl. 4, ¶28.
Plaintiffs allege One Voice maintained it had only $30,000
remaining, although whether that “$30,000 remaining” referred only
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to One Voice’s proceeds from the sale or the sum total of One
Voice’s assets remains unclear.
Compl. 4, ¶29.
In any event,
Plaintiffs have not been paid.
Plaintiffs allege that Whalehaven, a Bermuda company doing
business in
New
Jersey,
and
Alpha, a
business
operating and
incorporated in Liechtenstein, had the following involvement with
the deal.
Before putting up its patents for sale, One Voice
checked with Whalehaven, and managers of both Defendants approved
of the sale knowing of Plaintiffs’ planned assistance and “success
fee”
arrangement.
Plaintiffs
contend
Compl.
that
2-4
around
¶¶13-14,
the
28;
time
Pl.’s
Horizon
Resp.
secured
6.
the
services of the Chicago auctioneer for One Voice, Defendants
engaged in “unnecessary transferring” of the One Voice patents to
Defendant Whalehaven Portfolio Manager Eric Weisblum, and then back
to One voice “in an attempt to avoid paying Horizon Matrix its
success fee duly owed.”
elaborate
on
exactly
Id. at 7 ¶52.
what
role
that
The Complaint does not
transfer
played
in
the
retention of funds by Defendants.
Defendants “reached into this jurisdiction to commit a tort
against a resident of this jurisdiction” and were “intimately
involved in the patent portfolio sale which occurred in this
district,” according to Plaintiffs.
Pl.’s Resp. 5.
Specifically,
Whalehaven and Zielke had direct telephone and e-mail communication
from
2008
through
2010
regarding
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One
Voice,
and
Zielke
had
“communications” with Alpha on numerous occasions.
Ex. A ¶¶5-7; Pl.’s Resp. 1.
Pl.’s Resp.,
Defendants were aware of Plaintiffs’
Illinois residency, as well as the Chicago auctioneer’s Illinois
residency.
the
Pl.’s Resp. 6.
proceeds
Plaintiffs
received
alleged
The patent sale occurred in Illinois,
by
that
Defendants
by
virtue
came
of
from
Illinois,
Defendants’
and
unspecified
“intimate involvement” with the auction, Defendants “conducted
business” with the Chicago auctioneer.
Pl.’s Resp. 7.
Plaintiffs
do not allege they are in contractual privity with Defendants.
Plaintiffs
allege
tortious
interference
with
contractual
relations and also seek restitution under the equitable doctrines
of unjust enrichment, money had and received and the procuring
cause rule.
II.
A.
ANALYSIS
Legal Standard
In a motion to dismiss, the Court takes all of a plaintiff’s
well-pleaded facts as true and resolves any factual disputes in
favor of the plaintiff.
Cir. 2010).
Tamburo v. Dworkin, 601 F.3d 693, 700 (7th
The Court evaluates merely whether a plaintiff has
stated a prima facie case for jurisdiction and a cause of action,
and resolves all disputes over factual matters in favor of the
plaintiff. Id.
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B.
Personal Jurisdiction
In order for a court to have personal jurisdiction over a
defendant,
exist.
general
jurisdiction
or
specific
jurisdiction
must
Where no federal statute authorizes nationwide service of
process, personal jurisdiction is governed by the law of the forum
state.
Citadel Group Ltd. v. Wash. Reg’l Med. Ctr., 536 F.3d 757,
760 (7th Cir. 2008).
Illinois’ long-arm statute is a “catch-all”
statue, allowing jurisdiction to the full extent permitted by the
14th Amendment’s Due Process Clause in the U.S. Constitution.
For general jurisdiction, a defendant’s “contacts with the
forum state must be ‘so continuous and systematic as to render them
essentially at home in the forum state.’”
Colon v. Akil, et al.,
2011 U.S. App. LEXIS 23632 *6 (7th Cir. Nov. 16, 2011) (quoting
Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408,
415-16 (1984)).
Specific personal jurisdiction can be had if a
defendant purposely established minimum contacts with the forum
state such that he or she should reasonably anticipate being haled
into court.
Tamburo, 601 F.3d at 701.
Where torts are concerned,
Tamburo outlines a multi-step inquiry as to specific jurisdiction.
1.
Purposeful Direction
First, a defendant’s conduct must be purposefully directed at
the forum state.
Id., 601 F.3d at 702.
directed” inquiry has three subparts:
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This “purposefully
(1) whether a defendant
engaged in “intentional conduct,” (2) whether a defendant’s conduct
was “expressly aimed” at the forum state, and (3) whether a
defendant knew the effects would be felt (i.e., injured) in the
forum state.
Id.
As to the “expressly aimed” inquiry, Tamburo points out that
the Seventh Circuit decisions of Janmark, Inc. v. Reidy, to which
Plaintiff cites, and Wallace v. Herron “are in some tension” as to
whether the Seventh Circuit merely requires conduct “targeted at a
plaintiff whom the defendant knows to be a resident of the state”
or whether it requires that the forum state be the focal point of
the tort - that is, whether plaintiff can demonstrate that the
defendant expressly aimed its tortious conduct at the forum.
Tamburo, 601 F.3d at 705 (citing Janmark, 132 F.3d 1200 and
Wallace, 778 F.2d 391).
In
Janmark,
jurisdiction
was
found
when
an
out-of-state
competitor threatened an out-of-state customer of Illinois business
Janmark with a lawsuit if the customer did not stop buying Janmark
products.
Janmark, 132 F.3d 1200.
At first blush, Tamburo notes,
Janmark suggests it is enough that the defendant’s tort was against
an Illinois company and the injury was felt in Illinois.
Tamburo,
601 F.3d at 705.
But Wallace did not find specific jurisdiction in the forum
state of Indiana (whose jurisdictional statute is also co-extensive
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with the Due Process clause) over California residents when the
tortious action in a malicious prosecution case had occurred
exclusively in California.
Tamburo 601 F.3d at 704-705 (quoting
Wallace v. Herron, 778 F.2d 391, 395 (7th Cir. 1985).
Tamburo resolves this tension by concluding that, in fact,
there is more to Janmark than meets the eye.
The case found
jurisdiction based not on in-state effect alone, but with the
additional factor that the defendant there had acted with the
purpose of interfering with sales originating in Illinois and that
the
case
ultimately
“considered
the
relationship
between
the
allegedly tortious conduct and the forum state itself.” Id. at 706.
In the case at hand, Plaintiffs have adequately alleged that
Defendants’
conduct
deliberately
engaged
was
in
intentional
a
patent
by
stating
transfer
Defendants
scheme
to
keep
Plaintiffs’ from their fee and interfere with Plaintiffs’ contract;
Plaintiffs
also
allege
Defendants
retained
the
$2.4
million
“knowing full well that their retention of these funds would
deprive Plaintiffs of their $120,000 success fee.” Compl. 7; Pl.’s
Resp. 2.
Plaintiffs have also adequately alleged that Defendants knew
the effects of their tort would be felt within the forum state by
alleging each Defendant knew of One Voice’s fee arrangement with
Horizon, knew their actions would deprive Plaintiffs of their fee,
and knew both Plaintiffs were located in Illinois.
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Whether Defendants’ expressly aimed their conduct at Illinois
is a closer question.
While some cases find that knowing the
effects of a tort will be felt in a forum state satisfies the
“aiming” requirement, Tamburo suggests that even the generous
Janmark case required more.
What Janmark required, Tamburo tells
us, is that there be effect in the forum state plus knowledge the
tort would interfere with sales originating in Illinois.
601 F.3d at 706.
Tamburo,
Like Janmark, here there was effect in the forum
state (Plaintiff was deprived of funds here) plus interference with
a contract originating in Illinois and centered around a sale
conducted in Illinois.
Therefore,
the
“purposeful
direction”
requirement
is
satisfied.
2.
Arising Out Of
Second, Tamburo requires that the injury to a plaintiff “arise
out of” a defendant’s specific contacts with the forum state.
Id.
at 708 (citing Burger King v. Rudzewicz, 471 U.S. 462, 472 (1985).
This is where Plaintiffs’ allegations come up short, because
Tamburo requires that, at a minimum, “but for” these specific
contacts, the tortious injury would not have occurred. Id. at 708709.
Tamburo, in fact, may require even more than “but for”
causation; it may require the contacts be the proximate and legal
causation, but we need not decide that as will soon become clear.
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Here,
Defendants
communicated
with
allegedly
Plaintiffs,
“worked
in
with
this
Plaintiffs
district,
and
regarding
Plaintiffs’ attempts to lure more investors into One Voice” even
before the patent sale idea originated.
Pl.’s Resp. 1.
By
inference, when Plaintiffs state they were in phone and e-mail
communications through 2010, there is an allegation that some of
those contacts even concerned the sale of the patents.
However,
those contacts, at least as currently framed by Plaintiffs, are
irrelevant to the tort issue.
Business contact, even contractual
contact, will not alone justify personal jurisdiction.
See RAR,
Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1277 (7th Cir. 1997)
(referencing Rush v. Savchuk, 444 U.S. 320, 329 (1980), where
jurisdiction was denied because contacts were not “related to the
operative facts of the negligence action.”).
Plaintiffs
communication”
do
allege
with
the
Defendants
Chicago
“participated” in the sale here.
were
patent
in
“constant
auctioneer
Pl.’s Resp. 7.
transaction is not relevant to the tort issue.
and
But again, that
There is no
allegation that anything was wrong with the sale; what is alleged
is that the redirection of the proceeds of that sale was tortious.
Plaintiffs do not allege that it was Defendants who instructed
either One Voice or the Chicago auctioneer to redirect the proceeds
to Defendants, let alone alleging that the instruction to divert
the funds came in a specific contact with the forum state.
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Nor do
Plaintiffs allege that the specific contacts of the e-mails and
phone calls were tortious in nature, as the e-mails in Tamburo
were.
Despite the Plaintiffs’ conclusory language that Defendants
“reached into this jurisdiction to commit a tort,” there is no
allegation that “but for” Defendants’ specific contacts with the
forum state, the tort would not have occurred.
Thus, the “arising
out of” requirement is not met.
3.
Traditional Notions of Fair Play and Substantial Justice
Third, Tamburo requires that haling the defendant into the
forum state not “offend traditional notions of fair play and
substantial justice.” Id. at 709 (citing Int’l Shoe v. Washington,
326 U.S. 310 (1945)). This analysis examines factors including the
burdens on defendants and plaintiffs, the forum state’s interest in
adjudicating the dispute, and the interstate judicial system’s
interest
in
controversies.
obtaining
the
most
efficient
resolution
of
Burger King, 471 U.S. at 477.
In regard to “fair play and substantial justice,” Wallace
teaches that one should not be surprised, given one’s actions, at
being haled into court for them.
In Wallace, California lawyers
were directed by their client to sue an Indiana resident, Wallace.
Wallace sued in this circuit for malicious prosecution, but the
Seventh Circuit affirmed a finding of no personal jurisdiction.
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Despite the lawyers having sent subpoenas and interrogatories into
Wallace’s forum state, the court deemed those contacts attenuated
because the defendants did so on behalf of their client, and to ask
the defendants to answer in Indiana “would be unreasonable.”
Wallace, 778 F.2d 391, 394 (1985).
Here, there is a significant burden on the Defendants (one in
New
Jersey;
one
in
Liechtenstein),
particularly
given
attenuated nature of the specific contacts alleged.
the
Plaintiffs
have not alleged that Defendants, rather than One Voice, chose to
make
contact
with
Plaintiffs
or
the
Chicago
auctioneer.
Defendants’ interests in the forum state, like the attorneys’
interests in the forum state in Wallace, stemmed from another
party’s (One Voice) interest in the forum state.
Illinois does have a strong interest in providing a forum for
its residents
and
local
businesses
to
seek
redress
for tort
injuries suffered in-state by out-of-state actors. So too does the
interstate judicial system have an interest in finding a single
forum in which to address the allegations.
But there is nothing preventing adjudication in a single forum
situated
elsewhere,
and
while
another
forum
might
not
aid
Plaintiffs’ interests, that weight does not override the Due
Process protections due to Defendants.
At least under what has
been alleged so far, Defendants could not reasonably anticipate
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being haled into court here on the specific contacts so far
described.
Therefore, finding jurisdiction here would not comport with
fair play and substantial justice.
IV.
CONCLUSION
Because the Plaintiffs do not sufficiently allege specific
contacts with the forum state sufficiently linked to the tortious
activity, and because haling Defendants into court here would not
comport with notions of fair play and substantial justice, the
Court finds that it lacks personal jurisdiction in this matter, at
least as presently pled.
The Court therefore grants the Motion to
Dismiss, but does so without prejudice. If Plaintiffs are aware of
additional facts or actions that would sustain jurisdiction, they
are free to refile their Complaint within thirty (30) days.
Because the Court does not have jurisdiction, it declines to
address
the
other
jurisdictional
and
procedural
objections
Defendants raise in their Motion to Dismiss.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
DATE: 2/3/2012
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