Monco v. Zoltek Corporation et al
Filing
221
MEMORANDUM Opinion and Order: For these reasons, the Court grants Toray's motion to dismiss 154 without prejudice. If plaintiffs believe they can set forth a plausible theory for personal jurisdiction over Toray in an amended complaint, they should file an amended complaint and redline on or before 11/5/2018. The same briefing schedule recently set for Rumy's motion to dismiss plaintiffs' Second Amended Complaint will apply, with Toray's motion to dismiss (or answer, if Toray so chooses) to be filed by 11/26/2018, plaintiffs' response to be filed by 12/17/2018, and Toray's reply to be filed by 1/7/2019. Signed by the Honorable Thomas M. Durkin on 10/26/2018:Mailed notice(srn, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DEAN A. MONCO; JOHN S. MORTIMER;
WOOD, PHILLIPS, KATZ, CLARK &
MORTIMER ,
Plaintiffs,
v.
ZOLTEK CORPORATION;
ZSOLT RUMY; and
TORAY INDUSTRIES, INC.,
Defendants.
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No. 17 C 6882
Judge Thomas M. Durkin
MEMORANDUM OPINION & ORDER
Plaintiffs Dean A. Monco, John S. Mortimer, and Wood, Phillips, Katz, Clark,
& Mortimer sued defendants Zsolt Rumy, Zoltek Corporation, and Toray Industries,
Inc. (a Japanese corporation that purchased Zoltek in 2014), seeking recovery of legal
fees for plaintiffs’ representation of Zoltek in patent litigation spanning the course of
20 years. Before the Court is Toray’s motion to dismiss for lack of personal jurisdiction
under Federal Rule of Civil Procedure 12(b)(2) and for failure to state a claim under
Federal Rule of Civil Procedure 12(b)(6) [154]. For the following reasons, the Court
grants Toray’s motion to dismiss under Rule 12(b)(2)1 without prejudice.
STANDARD
“A complaint need not include facts alleging personal jurisdiction. However,
once the defendant moves to dismiss the complaint under Federal Rule of Civil
Because the Court finds dismissal appropriate under Rule 12(b)(2), it does not
reach Toray’s alternative argument under Rule 12(b)(6).
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Procedure 12(b)(2) for lack of personal jurisdiction, the plaintiff bears the burden of
demonstrating the existence of jurisdiction.” Purdue Research Found. v. Sanofi–
Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). When the court rules on the
motion without a hearing, the plaintiff need only establish a prima facie case of
personal jurisdiction. Id. The Court reads “the complaint liberally, in its entirety, and
with every inference drawn in favor” of the plaintiff to determine whether it has set
forth a prima facie case for personal jurisdiction. Cent. States, Se. & Sw. Areas
Pension Fund v. Phencorp Reinsurance Co., 440 F.3d 870, 877-78 (7th Cir. 2006).
“[O]nce the defendant has submitted affidavits or other evidence in opposition to the
exercise of jurisdiction, the plaintiff must go beyond the pleadings and submit
affirmative evidence supporting the exercise of jurisdiction.” Purdue, 338 F.3d at 783.
“[U]nder the prima facie standard, the plaintiff is entitled to have any conflicts in the
affidavits (or supporting materials) resolved in its favor.” Id.
APPLICATION
Because this Court is sitting in diversity, it has personal jurisdiction over the
parties to the extent that an Illinois court could exercise such jurisdiction. Philos
Techs., Inc. v. Philos & D, Inc., 645 F.3d 851, 855 n.2 (7th Cir. 2011). “Illinois extends
personal jurisdiction to the limits allowed by the United States Constitution, so the
state and federal standards are congruent here.” Id.
Personal jurisdiction can arise by way of: (1) “general jurisdiction (i.e.,
continuous and systematic contacts with Illinois)”; (2) “specific jurisdiction (i.e.,
sufficient minimum purposeful contacts with Illinois and the dispute arose out of
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those contacts)”; or (3) waiver, including when the agreement out of which a dispute
arises contains a forum selection clause and the defendant is either party to that
agreement or “so closely related to the dispute” that it is “bound by the forum selection
clause” even though it did not sign the agreement. Solargenix Energy, LLC v. Acciona,
S.A., 17 N.E.3d 171, 182 (Ill. App. Ct. 2014); accord Burger King Corp. v. Rudzewicz,
471 U.S. 462, 472 n.14 (1985) (“because the personal jurisdiction requirement is a
waivable right, there are a variety of legal arrangements by which a litigant may give
express or implied consent to the personal jurisdiction of the court,” including based
on a freely negotiated forum selection clause).
The third of these options—waiver based on a forum selection clause—is the
only basis on which plaintiffs assert personal jurisdiction over Toray in their Second
Amended Complaint and in their opposition to Toray’s motion to dismiss. Specifically,
they allege that “[w]hen Toray purchased Zoltek in 2014, it was fully aware of” an
attorney retainer agreement signed between Zoltek and plaintiffs in 1996, and that
Toray “is thus so closely related to this dispute that it was foreseeable that Toray
would be bound by the [forum selection] clause” in that retainer agreement. R. 217
¶ 15. The forum selection clause in the 1996 retainer agreement provided that the
parties agree to “submit themselves to the exclusive jurisdiction and venue of the
Federal District Court for the Northern District of Illinois for resolution of any and
all disputes under this Agreement.” R. 177-2 at 7. As plaintiffs themselves repeatedly
acknowledge, however, this agreement was “terminated” when Zoltek terminated
plaintiffs’ legal representation in 2016. E.g., R. 177 at 1, 6, 8. Plaintiffs therefore sue
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Toray only under a quantum meruit theory to recover fees for services provided. R.
217 ¶¶ 88-97.
As the Seventh Circuit explained in Vance v. Gallagher, 280 F. App’x 533 (7th
Cir. 2008)—a case neither party cites—“[u]nder . . . Illinois law, when an attorney
and a client enter into a fee agreement, if the client terminates the attorney, the
contract ceases to be operative.” Id. at 537; accord In re Estate of Callahan, 578
N.E.2d 985, 988 (Ill. 1991) (“when a client terminates a contingent-fee contract, the
contract ceases to exist between the parties thereto and the contingency term,
whether the attorney wins, is no longer operative”). “In that instance,” the Vance
court explained, “the attorney may recover fees for his services under the equitable
theory of quantum meruit.” Id. (citing Callahan, 578 N.E.2d at 987-88). And where
an attorney does “not assert a breach of contract claim . . . but rather assert[s] a claim
for fees based on quantum meruit,” reliance on a “forum selection clause” in the fees
agreement “is misplaced” because the action does not arise out of the contract. Id.
Plaintiffs argue that their quantum meruit claim arises from the retainer
agreement because the retainer agreement contained a provision entitling plaintiffs
to “the reasonable value of [their] services” in the event of termination. R. 177-2
¶ 4(b)(ii). They cite Hugel v. Corp. of Lloyd’s, 999 F.2d 206 (7th Cir. 1993), in support.
But that case held only that a “forum selection clause governs the action” “if the duty
arises from the contract,” as the tortious interference claim in that case did. Id. at
209; accord Solargenix, 17 N.E.3d at 182 (forum selection clauses “apply not merely
to contract claims involving the terms of the contract in which the clause appears,
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but also to other claims that are otherwise connected to the contract, such as tort
claims arising from the contract”). By definition, however, “a quantum meruit claim
sounds in restitution rather than contract.” Vance, 280 F. App’x at 537. Although in
some cases a quantum meruit claim is pleaded in the alternative to a breach of
contract claim based on a non-terminated contract, in the attorney-client context in
Illinois, a “contract ceases to be operative” when the attorney is terminated, and
quantum meruit is “the only basis for . . . recovery of fees.” Id.; accord Callahan, 578
N.E.2d at 987-88. Thus, as the Seventh Circuit in Vance held when addressing
precisely the situation here, a forum selection clause in a terminated attorney’s fees
agreement does not apply to a subsequent quantum meruit claim to recover fees to
which an attorney otherwise would have been entitled under that agreement. Id. On
this basis, the Court rejects plaintiffs’ argument that it can exercise personal
jurisdiction over Toray based on the forum selection clause in the parties’ terminated
retainer agreement.
Toray also argues in its motion to dismiss that this Court lacks specific or
general personal jurisdiction over it. Plaintiffs did not meaningfully address those
arguments in their response, instead focusing on their forum selection clause
argument based on the mistaken premise that forum selection clauses can extend to
quantum meruit claims after an agreement is terminated. Toray did not robustly
dispute that premise (not citing Vance or any other case directly addressing the issue
(see R. 155 at 4-5)). The Court therefore gives plaintiffs an opportunity to replead
other theories of personal jurisdiction over Toray. The Court notes, however, that in
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light of the evidence Toray has submitted in the form of its general manager’s
affidavit (R. 155-1), plaintiffs will need to “go beyond the pleadings” in response to
any motion to dismiss filed by Toray and submit “affirmative evidence supporting the
exercise of jurisdiction.” Purdue, 338 F.3d at 783.
CONCLUSION
For these reasons, the Court grants Toray’s motion to dismiss [154] without
prejudice. If plaintiffs believe they can set forth a plausible theory for personal
jurisdiction over Toray in an amended complaint, they should file an amended
complaint and redline on or before 11/5/2018. The same briefing schedule recently set
for Rumy’s motion to dismiss plaintiffs’ Second Amended Complaint will apply, with
Toray’s motion to dismiss (or answer, if Toray so chooses) to be filed by 11/26/2018,
plaintiffs’ response to be filed by 12/17/2018, and Toray’s reply to be filed by 1/7/2019.
ENTERED:
--------------------------------------------Honorable Thomas M. Durkin
United States District Judge
Dated: October 26, 2018
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