Spartan SP Investor, LLC v. Yagen et al
Filing
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MEMORANDUM Opinion and Order signed by the Honorable Ronald A. Guzman on 4/2/2014: For the reasons set forth above, the Court grants defendants' motion to transfer 20 , and denies in part and strikes in part defendants' motion to dismi ss 18 , as follows: the motion to dismiss for improper venue is denied, the motion to dismiss for lack of personal jurisdiction is stricken as moot and the motion to dismiss for failure to state a claim is stricken without prejudice to refiling with the transferee court. The Clerk of the Court is ordered to transfer this case to the Eastern District of Virginia, and terminate it from this Courts docket. Mailed notice (cjg, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
SPARTAN SP INVESTOR, LLC,
)
)
Plaintiff,
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)
vs.
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W. GERALD YAGEN, RUTH
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YAGEN, TRAINING SERVICES,
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INC., TECHNICAL EDUCATION
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SERVICES, INC., AMERICAN TRANS )
AIR TRAINING CORPORATION, and )
EMPLOYMENT SERVICES, INC.,
)
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Defendants.
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No. 13 C 6882
Judge Ronald A. Guzmán
MEMORANDUM OPINION AND ORDER
Plaintiff, Spartan SP Investor, LLC (“Spartan”) sues defendants, W. Gerald Yagen, Ruth
Yagen, Training Services, Inc., Technical Education Services, Inc., American Trans Air Training
Corporation, and Employment Services, Inc. for unjust enrichment, breach of contract, promissory
estoppel and fraud. Defendants have filed a motion pursuant Federal Rule of Civil Procedure
(“Rule”) 12(b)(2), (3) and (6) to dismiss the suit for lack of personal jurisdiction, improper venue
or failure to state a claim, or in the alternative, to transfer the suit to the Eastern District of Virginia
pursuant to 28 U.S.C. § 1404(a). For the reasons set forth below, the Court grants the motion to
transfer and denies and strikes the motions to dismiss.
Facts
Plaintiff, Spartan SP Investor, LLC (“Spartan”) is a Delaware company with its principal
place of business in Chicago. (Compl. ¶ 7.) Spartan is affiliated with Spartan Education, LLC,
a/k/a/ Spartan College, a vocational school in Tulsa, Oklahoma, and Sterling Partners LLC, a private
equity firm based in Chicago. (Id. ¶ 2.)
Defendants W. Gerald (“Gerald”) and Ruth Yagen own defendants Training Services, Inc.
(“TSI”), Technical Education Services, Inc. (“TES”), America Trans Air Training Corporation
(“ATA”), and Employment Services, Inc. (“ESI”), which operate vocational schools across the
country. (Id. ¶¶ 1, 10-13.) The Yagens live in Virginia, and TSI, TES, and ESI are located there.
(Id. ¶¶ 10-11, 13.) ATA is located in Indiana. (Id. ¶ 12.)
In May 2013, Gerald asked the Director of Spartan College if he was interested in buying
one of Gerald’s schools. (Pl.’s Resp., Ex. 1, Gerald Dep. at 62.) The Director told Gerald that the
College was now owned by Sterling, and asked Gerald if he would like to speak to a Sterling
representative. (Id. at 63.) Gerald said he would, and shortly after received a call from a Sterling
representative, who wanted to discuss buying several of Gerald’s schools. (Id. at 29.) Negotiations
ensued, during which Gerald and Sterling exchanged “hundreds” of emails and phone calls, and
Sterling personnel repeatedly visited Virginia both to conduct due diligence and to negotiate inperson with Gerald. (Id. at 30-34, 52-53, 65-66; Mem. Law Supp. Mot. Dismiss, Ex. B, Gerald Aff.
¶¶ 4-6; id., Ex. C, TSI Aff. ¶ 6; id., Ex. D, TES Aff. ¶ 6; id., Ex. E, ESI Aff. ¶ 6; id., Ex. F, ATA Aff.
¶ 6; Pl.’s Resp. Mot. Dismiss, Ex. 2, Rosenberg Aff. ¶ 3.) Neither Gerald nor any other
representative of defendants traveled to Illinois to negotiate the deal. (Mem. Law Supp. Mot.
Dismiss, Ex. B, Gerald Aff. ¶ 7; id., Ex. C, TSI Aff. ¶ 7; id., Ex. D, TES Aff. ¶ 7; id., Ex. E, ESI Aff.
¶ 7; id., Ex. F, ATA Aff. ¶ 7.)
Spartan alleges that in May and June 2013, it analyzed the corporate defendants’ operations,
and with the use of its own personnel and outside accounting, education and turnaround experts, it
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developed and helped Gerald implement a business plan to address the myriad of problems his
schools faced. (Compl. ¶¶ 18-21.)
On July 24, 2013, Gerald and the corporate defendants executed a term sheet for the sale of
sixteen of their schools, which are located in California, Florida, Georgia, Indiana, Nevada,
Pennsylvania, South Carolina, Texas, and Virginia, to Spartan.1 (See Mem. Supp. Mot. Dismiss, Ex.
A, Term Sheet at 1.) Among other things, the term sheet states:
The parties . . . agree to negotiate in good faith to execute and deliver an Asset
Purchase Agreement and agree upon forms of . . . other transaction documents as
soon as possible. If either Spartan, on the one hand, or Seller, on the other hand, fails
to negotiate in good faith or refuses to proceed with a transaction or definitive
documents on the terms and conditions expressly set forth in this Term Sheet, then
the party that has failed to negotiate in good faith, or has refused to proceed, shall,
immediately upon demand, reimburse the other party for its costs and expenses
incurred in connection with this Term Sheet . . . subject to a cap of $500,000. . . .
....
This Term Sheet is a non-binding expression of the intentions of the parties and is
subject in all cases to the negotiation, execution, and delivery of the Asset Purchase
Agreement and ancillary documents. While the parties currently intend to proceed
promptly to negotiate such agreements, it is expressly understood that no obligation
of any nature is intended or created by the parties pursuant to this Term Sheet
[except for the good faith/expense reimbursement provision]. . . .
(Id. at 4-5.)
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The schools are: (1) Aviation Institute in Atlanta, Georgia; (2) Aviation Institute in
Philadelphia, Pennsylvania; (3) Aviation Institute in Orlando, Florida; (4) Aviation Institute in
Houston, Texas; (5) Aviation Institute in Dallas, Texas; (6) Aviation Institute in Oakland,
California; (7) Aviation Institute in Las Vegas, Nevada; (8) Aviation Institute in Indianapolis,
Indiana; (9) Centura in Richmond, Virginia; (10) Centura in Richmond West, Virginia; (11)
Centura in Charleston, South Carolina; (12) Centura in Virginia Beach, Virginia; (13) Centura in
Norfolk, Virginia; (14) Centura in Chesapeake, Virginia; (15) Centura in Peninsula, Virginia;
and (16) Centura in Trades, Virginia. (See Defs.’ Mem. Supp. Mot. Dismiss, Ex. A, Term Sheet,
Ex. A, List of Schools.)
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By mid-August 2013, the schools were stabilized, and defendants refused to have any further
negotiations with Spartan. (Compl. ¶¶ 22-23.)
Discussion
Though defendants challenge both personal jurisdiction and venue, the Court may and will
address venue first. See Cote v. Wadel, 796 F.2d 981, 985 (7th Cir. 1986). In ruling on a motion
to dismiss for improper venue, the Court may consider matters outside of the complaint but resolves
factual disputes in plaintiff’s favor. Promero, Inc. v. Mammen, No. 02 C 1191, 2002 WL 31455970,
at *7 (N.D. Ill. Nov. 1, 2002). “[P]laintiff bears the burden of establishing that venue is proper.”
Id.
Venue is proper for this suit in “a judicial district in which a substantial part of the events
or omissions giving rise to the claim occurred.” 28 U.S.C. § 1391(a)(2). “[T]here may be several
districts that qualify as a situs of . . . ‘substantial’ activities” and a given district need not have more
substantial activities than another or the most substantial activities of any district to be a proper
venue. David D. Siegel, Commentary on 1998 and 1990 Revisions of Section 1391, subdiv. (a), cl.
2. The claims in this suit arise from the contemplated sale of sixteen schools, none of which is
located in Illinois, from a Virginia resident, three Virginia-based companies and an Indiana-based
company to an Illinois-based company. Though Illinois is not the epicenter of the parties’ dispute,
the record shows that sufficient activities underlying it occurred here to make this a proper venue
for the suit. (See Pl.’s Resp. Mot. Dismiss, Ex. A, Gerald Dep. at 52, 61 (testifying that, during the
negotiations, Spartan participated in the schools’ operation and engaged in numerous electronic
exchanges about the transaction from its Illinois headquarters.)
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Alternatively, defendants ask the Court to transfer this case to the Eastern District of Virginia
pursuant to 28 U.S.C. § 1404(a). Transfer is appropriate under § 1404(a) if venue is proper here,
venue and jurisdiction would be proper in the Eastern District of Virginia, and “the transfer will
serve the convenience of the parties and the witnesses [and] as the interests of justice.” Simonian
v. Hunter Fan Co., No. 10 C 1212, 2010 WL 3975564, at *1 (N.D. Ill. Oct.7, 2010). The movant
bears the burden of proof on these factors. Id. Because plaintiff addresses only the last factor, the
Court will do the same.
The last factor requires the Court to consider a number of private interest factors including
plaintiff’s forum choice, the situs of material events, access to sources of proof, convenience of the
witnesses and parties, as well as public interest factors such as the speed with which the case will
be resolved and the courts’ familiarity with the governing law. See Coffey v. Van Dorn Iron Works,
Inc., 796 F.2d 217, 220-21 (7th Cir. 1986); Simonian, 2010 WL 3975564, at *2.
Plaintiff’s forum choice is given substantial deference unless “another forum has a stronger
relationship to the dispute” or the chosen forum is not the situs of material events. Morton Grove
Pharms., Inc. v. Nat’l Pediculosis Ass’n, Inc., 525 F. Supp. 2d 1039, 1044 (N.D. Ill. 2007). Such
is the case here. Spartan’s claims arise from the contemplated sale of sixteen of schools, seven of
which are in located in Virginia and none of which is located in Illinois, to an Illinois-based
company, from a Virginia resident, three Virginia-based companies and an Indiana-based company.
(See Compl. ¶¶ 7-13; Mem. Law Supp. Mot. Dismiss, Ex. A, Term Sheet, Ex. A, List of Schools.)
In anticipation of the sale, Spartan’s employees and agents repeatedly visited Virginia to analyze
the corporate defendants’ operations, to develop and implement a business plan to return the schools
to a stable fiscal and financial footing, to have face-to-face negotiations with Gerald and to conduct
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due diligence. (Compl. ¶¶ 18-21; Pl.’s Resp. Mot. Dismiss, Ex. 1, Gerald Dep. at 33-36, 52-53.)
Though Gerald exchanged numerous emails and phone calls with Spartan personnel in Illinois,
neither he nor any other representative of the corporate defendants ever visited Illinois. (Pl.’s Resp.
Mot. Dismiss, Ex. 1, Gerald Dep. at 65-66; id., Ex. 2, Rosenberg Aff. ¶ 3; Mem. Law Supp. Mot.
Dismiss, Ex. B, Gerald Aff. ¶ 7; id., Ex. C, TSI Aff. ¶ 7; id., Ex. D, TES Aff. ¶ 7; id., Ex. E, ESI Aff.
¶ 7; id., Ex. F, ATA Aff. ¶ 7; Defs.’ Reply Supp. Mot. Dismiss, Ex. J, Pl.’s Answers Defs.’ Req.
Admit, Nos. 4-7, 9-13.) The negotiations culminated in the execution of a term sheet that required
the Virginia- and Indiana-based defendants to negotiate a final deal in good faith, which they
allegedly refused to do, thereby reaping the benefits of Spartan’s efforts for themselves and their
non-Illinois schools without paying for them. (See Mem. Law Supp. Mot. Dismiss, Ex. A, Term
Sheet.) In short, Virginia is the situs of the material events giving rise to this suit and has a much
stronger connection to it than Illinois. Accordingly, plaintiff’s forum choice merits little weight in
the transfer analysis, and the situs-of-material-events factor weighs in favor of transfer.
The last two private interest factors, access to sources of proof and convenience of the
witnesses and parties, have little bearing on the analysis. Neither party suggests that the documents
pertaining to the dispute cannot be easily shipped, identifies any non-party witness for whom
litigating in another forum will be a burden or suggests that litigating elsewhere will be unduly
burdensome for them. See Moore v. Motor Coach Indus., Inc., 487 F. Supp.2d 1003, 1007-08 (N.D.
Ill. 2007) (“The convenience of party witnesses is less relevant than the convenience of non-party
witnesses, since party witnesses normally must appear voluntarily.”); IP Innovation L.L.C. v.
Matsushita Elec. Indus. Co., Ltd., No. 05 C 902, 2005 WL 1458232, at *2 (N.D. Ill. June 13, 2005)
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(stating that the access-to-proof factor is neutral if documents can easily be shipped). Thus, these
factors are neutral.
The public interest factors, the speed with which the case will be resolved and the courts’
familiarity with the governing law, relate to “the efficient administration of the justice system.”
Coffey, 796 F.2d at 221; see Simonian, 2010 WL 3975564, at *2. Those interests will be far better
served by transferring this case to Virginia. According to the most recent statistics, as of September
30, 2013, the average caseload for judges in the Eastern District of Virginia was 312, while the
average caseload for judges in the Northern District of Illinois was 558.
See
http://www.uscourts.gov/Statistics/FederalCourtManagementStatistics/aspx (select “District Courts,”
“Illinois Northern,” and “Virginia Eastern”) (last visited February 19, 2014). The median time from
filing to disposition for a suit filed in the Eastern District of Virginia is 5.1 months, and the median
time from filing to trial is 11.6 months. See id. In this district, however, the median time from filing
to disposition is 6.7 months, and from filing to trial is 32.2 months. (See id.) Moreover, given this
suit’s significant contacts with Virginia, that state’s law, with which its courts are more familiar than
this Court, will likely govern. See Barbara’s Sales, Inc. v. Intel Corp., 879 N.E.2d 910, 919 (Ill.
2007) (stating that Illinois has adopted the Restatement’s choice-of-law principles, which state that
the governing law is that of the jurisdiction with the most significant relationship to the dispute).
In short, the public interest factors strongly favor transferring this case to Virginia.
The balance of the private and public interest factors also favors a transfer. Though plaintiff
chose this forum, the material events occurred in Virginia, and there is no evidence that the parties
or witnesses will be unduly burdened or unable to access necessary proof there if the case is litigated
there. Moreover, the interests of justice strongly favor transferring this case as it is likely to be
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resolved far more quickly and efficiently by a Virginia court. Accordingly, the Court grants
defendants’ motion to transfer this case to the Eastern District of Virginia.
Conclusion
For the reasons set forth above, the Court grants defendants’ motion to transfer [20], and
denies in part and strikes in part defendants’ motion to dismiss [18], as follows: the motion to
dismiss for improper venue is denied, the motion to dismiss for lack of personal jurisdiction is
stricken as moot and the motion to dismiss for failure to state a claim is stricken without prejudice
to refiling with the transferee court. The Clerk of the Court is ordered to transfer this case to the
Eastern District of Virginia, and terminate it from this Court’s docket.
SO ORDERED.
ENTERED: April 2, 2014
__________________________________
HON. RONALD A. GUZMAN
United States District Judge
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