Franklin Capital Holdings LLC v. Smedley et al
Filing
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MEMORANDUM OPINION AND ORDER Signed by the Honorable Robert M. Dow, Jr on 12/18/2015. Before the Court is Defendant Philip Dejoy's memorandum of law in support his motion to dismiss 24 for lack of personal jurisdiction pursuant t o Federal Rule of Civil Procedure 12(b)(2). For the reasons set forth below, the motion 24 is denied. The case remains pending against Defendant Dejoy and is set for a future status hearing on 1/28/16 at 9:00 am. Mailed notice(cdh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FRANKLIN CAPITAL HOLDINGS, LLC,
Plaintiff,
v.
PHILIP DEJOY,
Defendant.
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Case No. 14-cv-8001
Judge Robert M. Dow, Jr.
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant Philip Dejoy’s memorandum of law in support his motion
to dismiss [24] for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure
12(b)(2). For the reasons set forth below, the motion [24] is denied. The case remains pending
against Defendant Dejoy and is set for a future status hearing on 1/28/16 at 9:00 am.
I.
Background
Plaintiff, Franklin Capital Holdings, (“Plaintiff”) is a Delaware limited liability company
with its principal place of business in Highland Park, Illinois that provides credit programs to
businesses.
On or about February 17, 2011, Plaintiff entered into a Factoring Agreement
(“Factoring Agreement”) with Triad Communications Group, Inc. (“Triad”), a New Jersey
corporation, in which Plaintiff agreed to advance up to 85% of the purchase price of the accounts
receivable through the purchase of certain Triad invoices. Triad agreed to repay Plaintiff for
those advances by assigning to Plaintiff Triad’s interest in those invoices and all account
receivables that flowed from those invoices. In order to secure the performance of the Factoring
Agreement, Philip Dejoy (“Defendant”), who was President of Triad at the time and resides in
Jersey City, New Jersey, signed a continuing guaranty (“Guaranty”). See [21], Exh. C. The
Guaranty provides, in relevant part, that:
This Guaranty has been signed and delivered to [Plaintiff] for acceptance at Highland Park,
Illinois, and shall be governed by and construed according to the laws of the State of Illinois
(exclusive of choice of law principles), in which State it shall be performed by the Guarantors.
The Guarantors agree that, subject to [Plaintiff’s] sole and absolute election, all legal actions or
proceedings in any manner or respect arising out of or related to this Guaranty shall be brought
and litigated only in courts having situs in Cook County or Lake County, Illinois; and the
Guarantors hereby consent to and submit to the jurisdiction of any local, state or federal court
located in Cook County or Lake County, Illinois, and hereby waive any right the Guarantors may
have to transfer or change the venue of any such legal action or proceeding.
Defendant executed the Guaranty with Plaintiff on or about February 17, 2011, wherein
he guaranteed the full and prompt payment to Plaintiff of all indebtedness of Triad when due,
including all court costs and attorney’s fees, under the Factoring Agreement. On December 14,
2011, Triad ceased operations, and, according to Plaintiff, Defendant breached the Guaranty by
failing to pay the amounts owed under the Guaranty.
Plaintiff filed its complaint on October 14, 2014 [1] naming Defendant along with two
other individuals who subsequently have been dismissed from this case. See [18], [35]. Plaintiff
filed an amended complaint [21] on April 14, 2015. Count I asserts a cause of action for breach
of the aforementioned Guaranty executed by Defendant on or about February 17, 2011. Count II
and Court III assert that Defendant violated both Section 5(a)(1) and (a)(2), respectively of the
Illinois Uniform Fraudulent Transfer Act (“IUFTA”), when Defendant, after executing the
Guaranty with Plaintiff, transferred title to certain real estate to his wife. [21 at ¶ 31]. Plaintiff
alleges that this transfer was an attempt by Defendant to defraud Plaintiff. [Id. at ¶ 33]. Plaintiff
asserts that Defendant’s breach of the Guaranty has resulted in damages of $1,339,664.80 plus
fees, interest, and attorneys’ fees. On May 19, 2015, Defendant filed a memorandum of law in
support of his motion to dismiss [24], though he neglected to file the actual motion. Pursuant to
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the Court’s briefing schedule, Plaintiff filed a response by July 7, 2015 [30].
Defendant
neglected to file a reply, timely or otherwise.
II.
Legal Standard
Federal Rule of Civil Procedure 12(b)(2) governs dismissals for lack of personal
jurisdiction. Fed. R. Civ. P. 12(b)(2). “Once a defendant has moved for a dismissal based on the
lack of personal jurisdiction, the plaintiff bears the burden of demonstrating the existence of
jurisdiction.”
Kipp v. Ski Enter. Corp. of Wisc., Inc., 783 F.3d 695, 697 (7th Cir. 2015)
(quotation marks and citation omitted). When a court does not hold an evidentiary hearing but
instead reviews the defendant’s motion based on the submission of written materials, the plaintiff
need only establish a prima facie case of personal jurisdiction. Id.
Forum selection clauses are presumed valid. The Seventh Circuit read the Supreme
Court’s decision in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), and its own
decision in Heller Financial Inc. v. Midwhey Powder Co., 883 F.2d 1286 (7th Cir. 1989), as
“bury[ing] the outmoded judicial hostility to forum selection clauses.” Nw. Nat. Ins. Co. v.
Donovan, 916 F.2d 372, 375 (7th Cir. 1990). Those decisions “make clear that since a defendant
is deemed to waive (that is, he forfeits) objections to personal jurisdiction or venue simply by not
making them in timely fashion, a potential defendant can waive such objections in advance of
suit by signing a forum selection clause.” Id. “Freedom of contract requires no less” because
“[p]otential defendants would not agree to the inclusion of such a clause in their contracts if they
thought it would put them at a disadvantage should the parties have a dispute that resulted in
litigation, unless they were compensated for assuming that risk.” IFC Credit Corp. v. Aliano
Bros. Gen. Contractors, 437 F.3d 606, 609-10 (7th Cir. 2006). “Any doubt that federal law
accords such clauses the same presumption of validity as attends the price, quantity, and other
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terms normally found in contracts—that federal law doesn't look on them with a fisheye—was
dispelled * * * by the Supreme Court” in Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585
(1991). Id. In Shute, “[t]he clause was boilerplate in a classic ‘contract of adhesion’ (the fancy,
and pejorative, expression for a nonnegotiated, that is, take-it-or-leave-it, consumer contract),”
but the Supreme Court nevertheless upheld the forum selection clause as valid. Id. (citing Shute,
499 US at 595). “Such clauses, the [Supreme] Court said, could be invalidated only if they
flunked the test of fundamental fairness.” Id. (citing Shute, 499 US at 595).
“The presumptive validity of a forum selection clause can be overcome if the resisting
party can show it is ‘unreasonable under the circumstances.” Jackson v. Payday Fin., LLC, 764
F.3d 765, 776 (7th Cir. 2014) (citations omitted). “Relying on the [Supreme] Court's decisions
in M/S Bremen and Shute,” the Seventh Circuit has identified three sets of circumstances that
will render a forum selection clause unreasonable: “(1) if their incorporation into the contract
was the result of fraud, undue influence or overweening bargaining power; (2) if the selected
forum is so “gravely difficult and inconvenient that [the complaining party] will for all practical
purposes be deprived of its day in court; or (3) if enforcement of the clauses would contravene a
strong public policy of the forum in which the suit is brought, declared by statute or judicial
decision.” Id.
III.
Analysis
Defendant argues that the Court lacks jurisdiction because Defendant does not have
sufficient minimum contacts with Illinois. While “a contract between a state resident and an outof-state defendant alone does not automatically establish sufficient minimum contacts” Citadel
Grp. Ltd. v. Washington Reg'l Med. Ctr., 536 F.3d 757, 761 (7th Cir. 2008) (citing (quoting
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478 (1985)), the Seventh Circuit has described
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such “an argument to be meritless” when a party has “signed a valid forum selection clause.”
TruServ Corp. v. Flegles, Inc., 419 F.3d 584, 589 (7th Cir. 2005). “[A] valid forum-selection
clause, even standing alone, can confer personal jurisdiction.” Id. In TruServ Corp., the Seventh
Circuit determined that the defendant had “waived her objection to personal jurisdiction”
because the defendant had signed a valid forum-selection clause. Id. Thus, Defendant’s Rule
12(b)(2) motion turns on whether the forum-selection clause that he executed with Plaintiff is
valid. If the forum-selection clause is valid, then Defendant has waived his objection to personal
jurisdiction and the Court must deny his motion.
The validity of a forum-selection clause “depends on the law of the jurisdiction whose
rules will govern the rest of the dispute.” IFC Credit Corp.v. United Bus. & Indus. Fed. Credit
Union, 512 F.3d 989, 991 (7th Cir. 2008); see also Exhibit Sys., Inc. v. Pico Art Int'l Pte., Ltd.,
2015 WL 3930265, at *2 (N.D. Ill. June 25, 2015). The Guaranty selects Illinois for the
applicable law as well as its judicial forum, see [21, Exh. C at 6] (“Guaranty * * * shall be
governed by and construed according to the laws of the State of Illinois”), so Illinois law governs
the Court’s analysis here.
Under Illinois law, a legally enforceable contract demands evidence of an offer,
acceptance, and consideration. Vassilkovska v. Woodfield Nissan, Inc., 830 N.E.2d 619, 624 (Ill.
2005) (citation omitted). “It is a basic tenet of contract law that in order for a promise to be
enforceable against the promisor, the promisee must have given some consideration for the
promise.” Id. (citation omitted). “In the law of contracts, consideration is relatively easy to
show. As long as the person receives something of value in exchange for her own promise or
detriment, the courts will not inquire into the adequacy of the consideration.”
Wagner v.
NutraSweet Co., 95 F.3d 527, 532 (7th Cir. 1996) (citing White v. Vill. of Homewood, 628
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N.E.2d 616, 619 (Ill. 1993) (other citations omitted); see also LKQ Corp. v. Thrasher, 785 F.
Supp. 2d 737, 742 (N.D. Ill. 2011) (discussing general rules of contract law in Illinois). In
“agreements reached through arm’s length negotiation between experienced and sophisticated
business people,” “a forum selection clause in a contract is prima facie valid and should be
enforced unless the opposing party shows that enforcement would be unreasonable under the
circumstances.” Jackson, 764 F.3d at 777 (7th Cir. 2014) (quoting IFC Credit Corp. v. Rieker
Shoe Corp., 881 N.E.2d 382, 389 (Ill. 2007)).
To determine whether the forum selection clause is unreasonable, Illinois courts look to
“(1) which law governs the formation and construction of the contract; (2) the residency of the
parties involved; (3) the place of execution and/or performance of the contract; (4) the location
of the parties and witnesses participating in the litigation; (5) the inconvenience to the parties of
any particular location; and (6) whether the clause was equally bargained for.” GPS USA, Inc. v.
Performance Powdercoating, 226 N.E.3d 574, 578 (Ill. App. Ct. 2015). “Even if a majority of
the factors favor litigation in another forum, this court may still conclude that the clause is
reasonable.” Macey & Aleman v. Simmons, 2011 WL 1456762, at *3 (N.D. Ill. Apr. 14, 2011)
(citing Dace Int'l v. Apple Computer, 655 N.E.2d 974, 977 (Ill. App. Ct. 1995) (concluding that
the forum selection clause was reasonable even though four of the six factors favored litigation
in a different forum)).
The first and sixth factors militate in favor of the forum selection clause’s reasonableness.
As discussed above, Illinois substantive law governs the formation and construction of the
contract. As to the sixth factor, Defendant makes no argument that this bargain was the result of
fraud or unequal bargaining power, and the Court finds nothing in the record that would support
contract formation defenses. Defendant negotiated an arms-length agreement with Plaintiff
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resulting in significant amounts of money to a company of which Defendant was a principal.
Defendant received something of value, namely the Factoring Agreement, in exchange for his
own promise to resolve any dispute in an Illinois court. The third factor—where the contract was
executed—weighs in favor of the Defendant. It appears that the Guaranty was executed in New
Jersey, as evidenced by the signatures of two notaries from Ocean County, New Jersey. [21],
Exh. C. at 8.
The second, fourth, fifth factors—the residency of the parties, the location of the parties
and the witnesses, and the inconvenience of any particular location—are not determinative here.
Plaintiff is a Delaware corporation whose principal place of business is in Illinois, while
Defendant is a citizen and resident of New Jersey. Regardless of where the case is litigated, one
of the parties will be forced to litigate in an out-of-state forum. Defendant has not provided any
evidence that moves this dispute out of the ordinary realm of parties residing in two separate
states. It is unclear who will be called as witnesses in this litgation, but the parties’ respective
locations are identical to their residency. There will be some inconvenience to Defendant in
litigating this case outside of New Jersey, but applying Illinois contract law, the Court presumes
that Defendant received consideration for that inconvenience through the Forum Agreement.
Under Illinois law, “even when one party claims inconvenience, if both parties freely entered the
agreement contemplating such inconvenience should there be a dispute, one party cannot
successfully argue inconvenience as a reason for rendering the forum clause unenforceable.”
Calanca v. D & S Mfg. Co., 510 N.E.2d 21, 23 (Ill. App. Ct. 1987). Defendant has not shown
that “‘trial in the contractual forum will be so gravely difficult and inconvenient that he will for
all practical purposes be deprived of his day in court.’” Id. (quoting Bremen v. Zapata Off-Shore
Co., 407 U.S. 1, 8 (1972)). Accordingly, the Court finds that “there is no basis for concluding
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that it would be unfair, unjust, or unreasonable to hold that party to his bargain.” Id. (citation
omitted).
Accordingly, the Guaranty’s forum selection clause is enforceable against the
Defendant.
As for Plaintiff’s claims under the IUFTA, 740 ILCS 160/1 et seq. (Counts II and III), the
Court has supplemental jurisdiction over those state law claims under 28 U.S.C. § 1367. See,
e.g., For Your Ease Only, Inc. v. Calgon Carbon Corp., 560 F.3d 717, 719 (7th Cir. 2009),
Kopecky v. RJM Investments, 2009 WL 2746151, at *2 (N.D. Ill. Aug. 26, 2009). Section 1367
provides that “[i]n any civil action of which the district courts have original jurisdiction, the
district courts shall have supplemental jurisdiction over all other claims that are so related to
claims in the action ... that they form part of the same case or controversy.” 28 U.S.C. § 1367(a).
Thus, both the state and federal claims must derive from a “common nucleus of operative facts.”
United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966). Counts II and III are bound up with
the conduct alleged in Count I. Count I asserts a cause of action for breach of the aforementioned
Guaranty, and Counts II and III assert that Defendant violated both Section 5(a)(1) and (a)(2),
respectively of the IUFTA, when Defendant, after executing the Guaranty with Plaintiff,
transferred title in the sole real estate owned by Defendant to his wife. Such a transfer allegedly
interferes with Plaintiff’s ability to recover for the breach of the Guaranty. That is enough for the
Court to exercise supplemental jurisdiction, considering “a loose factual connection between the
claims is generally sufficient.” McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 683 (7th Cir.
2014); see also Kopecky, 2009 WL 2746151, at *2.
Because there is nothing to establish that the Guaranty’s forum selection clause was
procured by fraud or that it is unreasonable under Illinois law, the forum selection clause is
enforceable. Plaintiff has therefore satisfied its burden of showing that the Court has personal
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jurisdiction over Defendant, and the Court has supplemental jurisdiction over Plaintiff’s claims
under IUFTA pursuant to 28 U.S.C. Section 1367. Accordingly, Defendant’s motion to dismiss
under Federal Rule of Civil Procedure 12(b)(2) [24] is denied.
IV.
Conclusion
For the foregoing reasons, Defendant’s motion to dismiss [24] under Federal Rule of
Civil Procedure 12(b)(2) is denied. The case remains pending against Defendant and is set for a
future status hearing on 1/28/16 at 9:00 am.
Dated: December 18, 2015
____________________________________
Robert M. Dow, Jr.
United States District Judge
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