Marquette Bank v. Brown et al
Filing
60
MEMORANDUM OPINION Signed by the Honorable John F. Grady on March 31, 2014. Mailed notice(cdh, )
13-2620.141-JCD
March 31, 2014
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MARQUETTE BANK, an Illinois
banking association,
Plaintiff,
v.
DEBRA JO BROWN, MELINDA GABBARD,
MEEGAN COLLIER, BRENDA R. LEE,
MICHAEL COLLIER, JOHN D. GAY, and
RUTHY LARGE,
Defendants.
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No. 13 C 2620
MEMORANDUM OPINION
Before the court is defendants’ motion to dismiss for lack of
personal jurisdiction, pursuant to Federal Rule of Civil Procedure
12(b)(2), or, in the alternative, to transfer this action to the
Southern District of Indiana pursuant to 28 U.S.C. § 1404(a), or,
in the alternative, to dismiss this action for failure to state a
claim, pursuant to Federal Rule of Civil Procedure 12(b)(6).
For
the reasons explained below, we grant the motion to dismiss for
lack of personal jurisdiction.
BACKGROUND
Plaintiff,
Marquette
Bank
(“Marquette”),
is
an
Illinois
banking association that in April 2008 made a $3.5 million mortgage
loan to Kankakee Motel Associates L.P. (“Kankakee Associates”), an
Indiana limited partnership owned and controlled by an Indiana
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citizen named Lester Lee.
a party to this lawsuit.
Kankakee
Illinois.
Associates’
Neither Kankakee Associates nor Lee is
The purpose of the loan was to refinance
motel
property,
located
in
Bourbonnais,
Marquette alleges that it made the loan based on Lee’s
purported personal financial strength as well as his guaranty.
When Lee applied for the loan in November 2007, he furnished
Marquette with a financial statement indicating that as of January
1, 2007, he had a net worth of more than $19 million.
In October
2008, he furnished Marquette with a financial statement indicating
that he continued to have approximately the same net worth.
In mid-2009, Kankakee Associates became delinquent on its loan
payments
(and
by
January
2010,
the
motel
was
closed).
Lee
subsequently furnished Marquette with an October 2009 financial
statement representing that he now had a negative net worth.
On
August 18, 2010, Marquette obtained a judgment of foreclosure
against Kankakee Associates in the amount of $3,999,738.66.
In
January 2012, Lee filed a Chapter 7 bankruptcy petition in the
United
States
Indiana.
Bankruptcy
Court
for
the
Southern
District
of
It is alleged that as of March 28, 2013, Kankakee
Associates and Lee (by virtue of his guaranty) owed plaintiff
$2,597,823.58, plus interest, fees, and costs.
Marquette has
brought an adversary proceeding against Lee in the bankruptcy case
to determine the dischargeability of the debt.
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Marquette
alleges
that
Lee
misrepresented
his
financial
condition both before and after the issuance of the loan and that
after its issuance, Lee “engaged in a series of artifices and
fraudulent transfers to entities owned by his” family members and
“transferred assets that had been pledged” to Marquette without
Marquette’s knowledge or permission.
(First Am. Compl. ¶ 1.)
Marquette claims that in order to induce Marquette to make the
loan, Kankakee Associates had executed an “Assignment of Contract”
that granted Marquette a security interest in a Land Contract
between Kankakee Associates and an entity called Youngevity Mineral
Spa, LLC (“Youngevity”), for the sale of Kankakee Associates’ real
estate and related motel operation.
According
to
Marquette,
the
Land
(First Am. Compl. ¶ 80.)
Contract
provided
that
Youngevity’s down payment would consist of an option to purchase a
“certain tract of real estate” on Grand Cayman Island.
Compl. ¶ 43.)
of
the
Land
(First Am.
Marquette alleges that Lee misrepresented the terms
Contract and
that
Kankakee
Associates
was
never
actually granted an option to purchase the Grand Cayman property;
rather, the option was granted by an individual named Joel Wallach
to one of Lee’s other business entities, the Lee Group Holding
Company (“Lee Group Holding”), and then transferred to Lee. (First
Am. Compl. ¶¶ 44, 46, 48.)
It is Marquette’s position that Lee
“wrongfully usurp[ed]” the option, worth $1.3 million.
Compl. ¶ 47.)
(First Am.
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It is also alleged that in mid-2008, Lee “participated in the
entry of a judgment in a collusive action brought by him and
corporations owned and/or controlled by him” wherein one of his
business entities, Lee Group Holding, sued another of his business
entities, Lees Inns of America, Inc. (“Lees Inns”).
Compl. ¶ 87.)
(First Am.
Lee then caused the parties to enter into an agreed
judgment pursuant to which all of the assets of Lees Inns were
transferred to Lee Group Holding, which was owned by Lee’s wife and
children.
(First Am. Compl. ¶ 93.)
Lee then misrepresented to
Marquette in October 2008 that he still owned shares in Lees Inns
valued at $1.7 million, although he had actually transferred all of
his assets to an entity nominally owned by his wife and children.
(First Am. Compl. ¶ 95.)
In the instant suit, Marquette alleges that Lee “was aided in
his defalcations and deceptions by the defendants[,] . . . who
actively conspired with him.”
(First Am. Compl. ¶ 1.)
The
defendants are Debra Jo Brown, Melinda Gabbard, and Meegan Collier,
Lee’s daughters; Brenda R. Lee, Lee’s wife; Michael Collier, Lee’s
son-in-law and an employee and/or officer of one or more of Lee’s
businesses; John D. Gay, a lawyer who served as counsel to all of
Lee’s businesses; and Ruthy Large, an employee of Lee’s businesses.
Defendants, who are all citizens of Indiana, move to dismiss
for lack of personal jurisdiction.
Alternatively, defendants ask
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us to transfer the case pursuant to 28 U.S.C. § 1404(a) or for
dismissal for failure to state claims for civil conspiracy.
DISCUSSION
“The
plaintiff
has
the
burden
of
establishing
personal
jurisdiction, and where . . . the issue is raised by a motion to
dismiss and decided on the basis of written materials rather than
an evidentiary hearing, the plaintiff need only make a prima facie
showing of jurisdictional facts.”
693, 700 (7th Cir. 2010).
Tamburo v. Dworkin, 601 F.3d
In analyzing personal jurisdiction, we
take well-pleaded allegations of the complaint as true unless they
are refuted by the defendant in an affidavit.
See id.
“A federal
court exercising diversity jurisdiction has personal jurisdiction
only where a court of the state in which it sits would have such
jurisdiction.”
Philos Techs., Inc. v. Philos & D, Inc., 645 F.3d
851,
(7th
855
n.2
Cir.
2011).
Illinois’s
long-arm
statute
authorizes personal jurisdiction to the extent permitted by the
Illinois Constitution and the United States Constitution. 735 ILCS
5/2-209(c). “[T]here is no operative difference between these two
constitutional limits,” so a single constitutional inquiry will
suffice.
Mobile Anesthesiologists Chicago, LLC v. Anesthesia
Assocs. of Houston Metroplex, P.A., 623 F.3d 440, 443 (7th Cir.
2010).
“The key question is therefore whether the defendants have
sufficient
‘minimum
contacts’
with
Illinois
such
that
the
maintenance of the suit ‘does not offend traditional notions of
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fair play and substantial justice.’”
Tamburo, 601 F.3d at 700-01
(quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
There are two types of personal jurisdiction: general and
specific.
General jurisdiction exists where a defendant has
“continuous and systematic general business contacts” with the
forum, while specific jurisdiction refers to jurisdiction over a
defendant in a suit “arising out of or related to the defendant’s
contacts with the forum.”
RAR, Inc. v. Turner Diesel, Ltd., 107
F.3d 1272, 1277 (7th Cir. 1997) (quoting Helicopteros Nacionales de
Colombia, S.A. v. Hall, 466 U.S. 408, 416, 414 n.8 (1984)).
Plaintiff relies only on specific jurisdiction. “Specific personal
jurisdiction
is
appropriate
purposefully
directed
purposefully
availed
his
where
activities
himself
of
the
(1)
at
the
the
defendant
forum
privilege
of
state
has
or
conducting
business in that state, and (2) the alleged injury arises out of
the defendant’s forum-related activities.”
Tamburo, 601 F.3d at
702.
Defendants contend that they are not subject to specific
jurisdiction in Illinois because they did not purposefully direct
their activities at the state or purposefully avail themselves of
conducting business here.
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A.
The Lee Family Defendants
Because the allegations regarding Debra Jo Brown, Melinda
Gabbard, Meegan Collier, and Brenda R. Lee are the same,1 we will
treat them as a group and refer to them as the “Lee Family
Defendants,” as the parties have done.
The Lee Family Defendants
were members of the board of directors of Lees Inns and members of
Lee Group Holding.
(First Am. Compl. ¶¶ 3-6.)
Lees Inns was the
general partner of Kankakee Associates; at all times relevant to
the complaint, Lester Lee claimed to be the “100% owner of the
equity in Lees Inns.”
(First Am. Compl. ¶ 13.)
The Lee Family Defendants argue that the only allegation
against them that remotely involves Illinois is that in their
capacity as board members of Lees Inns, they executed a written
consent
authorizing
it,
as
the
general
partner
of
Kankakee
Associates, to enter into the loan with Marquette, and caused the
consent to be sent to Marquette.
In defendants’ view, this act
cannot be construed as being “purposefully directed” at Illinois,
since there are no allegations that the Lee Family Defendants did
anything more than consent to the loan, something a board member
would have done even in the absence of fraud.
Defendants also
maintain that this alleged action in furtherance of the conspiracy
1/
Regarding Brenda R. Lee, it is also alleged that she accompanied Lester
Lee to an October 2009 meeting with plaintiff’s representatives at its
headquarters in Illinois, First Am. Compl. ¶ 125, but plaintiff does not rely on
that conduct as a basis for an assertion of personal jurisdiction over Brenda.
(In any event, that conduct is not alleged to have been tortious.)
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is
too
attenuated
to
support
the
imposition
of
personal
jurisdiction.
In
response,
Marquette
cites
the
“express
aiming
test,”
pursuant to which constitutionally-sufficient “contacts can be
imputed to a defendant if the defendant is accused of committing an
intentional tort by actions that are ‘expressly aimed’ at the forum
state.”
See Mobile Anesthesiologists, 623 F.3d at 444 (quoting
Calder v. Jones, 465 U.S. 783, 789 (1984)).2
Plaintiff asserts
that in addition to authorizing Marquette to enter into the loan
transaction, the Lee Family Defendants also “actively participated
in the wrongful conversion of a $1.3 million [] asset, the Option
to purchase the Cayman Islands property, by The Lee Group Holding
Company” and were the “willing beneficiaries” of the allegedly
collusive lawsuit brought by Lee, and that these “sham transfers”
were attempts “to deprive creditors, of which Marquette was one, of
the assets of Lester Lee who was on the hook through his Guaranty.”
(Pl.’s Resp. at 18-21.)
The Lee Family Defendants’ only alleged conduct with respect
to the option is their consent as members of Lee Group Holding to
the assignment of the option from that entity to Lester Lee; this
2/
Plaintiff refers to the doctrine as the “effects test,” but we will use
the term “express aiming test,” which the Seventh Circuit expressly prefers as
“more faithful” to Calder, in which the Supreme Court announced the test.
See Mobile Anesthesiologists, 623 F.3d at 445 n.1.
Plaintiff does not rely on the “conspiracy theory” of jurisdiction (under
which it would argue that we may assert jurisdiction over non-resident defendants
who had no contacts with Illinois if they participated in a conspiracy with
defendants who did have such contacts).
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action occurred after the alleged conversion of the asset by Lee
Group Holding.
(First Am. Compl. ¶ 49.)
We are unpersuaded by the
argument that the consent to this assignment had a “direct impact”
on Marquette, and even if it did, there is no evidence from which
we can infer that the Lee Family Defendants “expressly aimed” this
action at Illinois or knew that the effect of the consent would be
felt by Marquette.
Moreover, merely benefitting from an allegedly
collusive lawsuit orchestrated by someone else does not even rise
to the level of “conduct” that can be “aimed.”
The remaining
alleged conduct of the Lee Family Defendants is their authorization
of Marquette to enter into the loan transaction, which is not a
tortious act.
Plaintiff has failed to show that Debra Jo Brown,
Melinda Gabbard, Meegan Collier, and Brenda R. Lee are subject to
personal
jurisdiction
in
Illinois;
therefore,
they
will
be
dismissed from this action.
B.
Michael Collier
Michael Collier was the president of Hotel Capital Partners,
LLC (“Hotel Partners”), one of Lee’s business entities, and ran
Lees Inns “on a day-to-day basis.”
(First Am. Compl. ¶ 7.)
He is
alleged to have accompanied Lester Lee to the Cayman Islands to
have the Grand Cayman property appraised and to negotiate the Land
Contract, First Am. Compl. ¶ 72, and then to have given “Ruthy
Large
the
Land
Contract
misrepresentations
and
knowing
omissions,”
that
it
First
contained
Am.
Compl.
material
¶
45.
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Defendant contends that this conduct was not expressly aimed at
Illinois.
In response, Marquette submits the unsworn declaration
of Joel Wallach, the individual who (or whose company, Youngevity)
entered into the Land Contract to buy the Kankakee motel property,
as well as the unsworn declaration of Mikal Christopherson, a
Marquette loan officer who was involved in the Kankakee Associates
loan.
Marquette relies on the declarations to attempt to show
additional conduct by Collier--that he “tricked Joel Wallach into
granting the Option [to purchase the Cayman Islands property] to
[Lee
Group
Holding]”;
“falsely
reported
to
the
independent
appraiser [hired to appraise the Kankakee motel property] that the
purchase price included the Cayman Islands property”; “continued to
[mis]represent
to
Marquette
that
the
Option
had
not
been
exercised”; spoke on the phone with Christopherson 10-15 times,
exchanged 20 e-mails with him, and came to Illinois twice in
relation to the loan; and “spoke to an appraiser in Illinois, and
affirmatively misled him, as he did [Marquette’s] representative.”
(Pl.’s Resp. at 21-22.)
Although the declarations of Wallach and Christopherson state
that they are made “pursuant to 28 U.S.C. § 1746,” they are missing
a critical element in that they fail to state that they are made
under penalty of perjury.3
Therefore, we will not consider them.
3/
Defendants discuss this deficiency in their reply brief. We granted
Marquette’s motion for leave to file a surreply; it failed to address this
deficiency or file properly-amended declarations.
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As to Collier, we are left with the allegation that he gave the
Land
Contract
to
Ruthy
Large
misrepresentations and omissions.
knowing
that
it
contained
The complaint also contains the
conclusion that Collier “caused” the fraudulent Land Contract for
the Kankakee motel property to have been delivered to Marquette,
First Am. Compl. ¶ 47, but this statement is not supported by the
mere fact that Collier gave the contract to Large.
It is not
alleged that he directed Large to send the contract to Marquette or
even that he gave it to her for the purpose of having it sent to
Marquette.
We cannot infer that this conduct was expressly aimed
at Marquette in Illinois.
Accordingly, Michael Collier will be
dismissed from this action for lack of personal jurisdiction.
C.
John Gay
John Gay is an Indiana lawyer who performed legal work for
Lee’s companies.
(First Am. Compl. ¶ 8.)
He is alleged to have
sent an opinion letter to Marquette regarding the loan that “could
not have been communicated . . . in good faith,” given “the
knowledge he had at the time of its creation.”
¶ 38.)
(First Am. Compl.
The letter stated that as counsel for Kankakee Associates,
Gay had reviewed the loan documents, the note, and the corporate
proceedings pursuant to which the loan was approved and authorized.
It also stated that, among other things, in Gay’s opinion, “the
execution
and
delivery
of
the
[Mortgage
Security
Agreement
Assignment of Leases and Rents and Fixture Filing dated April 11,
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2008]
and
the
Loan
Documents,
the
performance
thereunder
by
[Kankakee Associates] will comply with all applicable law and will
not
violate
or
conflict
with
the
instruments
under
w[hich]
[Kankakee Associates] is reorganized or any applicable contracts or
agreements.”
(First Am. Compl. Ex. 6, at 2.)
Marquette contends
that Gay’s opinion was false because he was aware that Lee had
“converted”
the
option,
that
Lee’s
representations
about
his
finances and warranties in his guaranty were false, and that there
was
litigation
pending
that
could
adversely
affect
Lee’s
performance as a guarantor, and Gay did not disclose any of these
circumstances to Marquette.
contend
that
the
(Pl.’s Resp. at 23-24.)
opinion
letter
is
a
Defendants
“routine
business
communication” that is insufficient to establish a basis for
personal jurisdiction.
(Def.’s Mem. in Supp. of Mot. at 14.)
Marquette has alleged that Gay purposefully directed tortious
activity at Illinois (where he clearly knew Marquette was located)
by allegedly sending Marquette his opinion letter, which contained
misrepresentations and omissions, in furtherance of a conspiracy
with Lee to defraud Marquette.
This contact with Illinois is
sufficient to establish personal jurisdiction over Gay under the
“express
aiming”
test.
The
decisions
cited
by
defendants,
Juristech Associates, Ltd. v. Krieg Devault Alexander & Capeheart,
LLP, No. 02 C 620, 2002 WL 1343746 (N.D. Ill. June 18, 2002)
(Grady, J.), and Cobra Capital, LLC v. RF Nitro Communications,
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Inc., No. 02 C 493, 2002 WL 1263985 (N.D. Ill. June 5, 2002), are
distinguishable because neither applied the “express aiming” test
and the business communications at issue were not alleged to have
been intentional and allegedly tortious conduct.
Furthermore, we
are unpersuaded by defendants’ assertion that the opinion letter
contained only “basic and rudimentary opinions” that were true and
therefore did not constitute a tortious act in furtherance of a
conspiracy, Defs.’ Reply at 11-12.
Marquette has sufficiently
alleged why the letter was false and misleading.
Defendants assert that even if Gay’s contact with Illinois is
sufficient, we should refuse to exercise personal jurisdiction
pursuant to the Illinois fiduciary-shield doctrine.
The doctrine
gives us discretion to decline to exercise personal jurisdiction
over an individual whose presence and activity in the forum state
were solely on behalf of his employer or other principal. See Rice
v. Nova Biomedical Corp., 38 F.3d 909, 912-14 (7th Cir. 1994)
(citing Rollins v. Ellwood, 565 N.E.2d 1302, 1313-18 (Ill. 1990)).
The doctrine can be applied even to defendants who are alleged to
have committed a tortious act within the scope of their employment.
Rollins,
565
N.E.2d
at
1318.
Fairness
is
the
key
inquiry;
significant factors to consider in determining whether it would be
reasonable to hale an agent into court based on his actions include
whether the agent was acting also or instead to serve his own
personal interests and whether his conduct was of his own choosing.
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See, e.g., Brujis v. Shaw, 876 F. Supp. 975, 978-80 (N.D. Ill.
1995) (citing cases applying Illinois law).
Marquette’s allegations describe actions Gay took on behalf of
Lester Lee and/or Lee’s thirty-plus business entities.
Compl. ¶ 8.)
(First Am.
Marquette argues in a conclusory fashion that Gay is
not entitled to fiduciary-shield protection because “his legal
representation was only of [Kankakee Associates],” “in relation to
Lester Lee he was an autonomous actor,” and he “had the total
discretion as to the content of his opinion letter,” but it has not
produced any such evidence. (Pl.’s Resp. at 27-28.) Moreover, the
allegations of the complaint belie the argument.
Gay “served as
counsel to all companies and business entities operated, owned
and/or controlled by Lester Lee.”
His “office was located at the
same address as [Kankakee Associates] and [Lees Inns].” (First Am.
Compl. ¶ 8.)
It is also alleged that “[a]t all times, [Gay] was
directed by Lester Lee.”
(First Am. Compl. ¶ 55.)
Gay was
carrying out Lee’s wishes when he sent the opinion letter to
Marquette; there is no evidence to the contrary.
Marquette maintains that we should not apply the fiduciary
shield because Gay personally benefitted from his contact with
Illinois, but it presents no such evidence.
It argues simply that
Gay’s income was dependent upon Lee and that he therefore acted in
his own economic self-interest by sending the opinion letter.
The
Illinois Supreme Court, however, has stated that there is no
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exception to the fiduciary shield doctrine simply because an
employee is serving his own financial interests by performing the
tasks assigned him by his employer.
Rollins, 565 N.E.2d at 1318.
We find that the fiduciary shield doctrine is applicable to
John
D.
Gay
and
accordingly
decline
to
exercise
personal
jurisdiction over him.
D.
Ruthy Large
Like John Gay, Ruthy Large worked for several companies
controlled by Lester Lee, including Hotel Partners.
When she
worked for Hotel Partners, her title was “Loan Manager,” and her
responsibilities
included
complying
with
financial
reporting
requirements for loans and fielding questions from loan officers.
“She served as the loan processor, closing coordinator, and she
serviced the loans.”
(First Am. Compl. ¶ 9.)
It is alleged that Large had a number of contacts with
Illinois that constituted tortious conduct. Marquette alleges that
Large gave the Land Contract to Robert Schneider, another Hotel
Partners employee, to send to Mikal Christopherson at Marquette
with the intention to have Marquette rely upon the contract, even
though Large knew it contained a material misrepresentation about
Youngevity’s right to grant the option.
(First Am. Compl. ¶ 45.)
In December 2007, she told Christopherson that she was his “point
of contact” about the loan application, and after the loan was
made, she allegedly sent two of Lee’s false financial statements to
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Marquette knowing that they contained misrepresentations.
Am. Compl. ¶¶ 81, 85, 120-21.)
(First
Furthermore, after Lee allegedly
fraudulently transferred his assets and Christopherson asked Large
about the loss of assets, Large told him that “Mr. Lee has been
doing estate planning for the last several years and the transfer
of those items are merely a part of that.”
& Ex. 30.)
(First Am. Compl. ¶ 122
Marquette alleges that this was a misrepresentation
because Large knew that the transfers were part of his attempts to
put his assets beyond the reach of creditors.
Large’s allegedly
tortious conduct is alleged to have been in furtherance of a
conspiracy with Lee to defraud Marquette.
Her contacts with
Illinois are sufficient to establish personal jurisdiction under
the “express aiming” test.
Defendants raise the fiduciary shield doctrine with respect to
Large.
were
The allegations of the complaint indicate that her actions
taken
as
an
employee
of
Lester
Lee.
Her
alleged
misrepresentation about estate planning is even explicitly alleged
to have been made “[a]t the direction of Lester Lee.”
(First Am.
Compl. ¶ 122.) Marquette responds with a weak argument unsupported
by any evidence---that Large “was the Loan Manager who decided what
documents Marquette would receive” and that her actions were “not
done in the interest of her employer.”
decisions
cited by
Marquette
in
(Pl.’s Resp. at 30.)
support
of
its
argument
inapposite because they involved senior corporate officers.
The
are
- 17 -
We find that the fiduciary shield doctrine is applicable to
Ruthy
Large
and
accordingly
decline
to
exercise
personal
jurisdiction over her.
Because we conclude that we lack personal jurisdiction over
the defendants, we need not reach their motion for transfer of this
case or for dismissal for failure to state a claim.
CONCLUSION
For the foregoing reasons, defendants’ motion to dismiss [42]
is
granted.
This
action
is
dismissed
for
lack
of
personal
jurisdiction without prejudice to refiling in the Southern District
of Indiana.
DATE:
March 31, 2014
ENTER:
_______________________________________________
John F. Grady, United States District Judge
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