Bank v. Walker

• Decision Date: 23 September 2010
• Docket Number: No. 09 C 7380.,09 C 7380.
• Citation: 741 F.Supp.2d 912
• Parties: MB FINANCIAL BANK, N.A., Plaintiff,v.Roy A. WALKER, Defendant.
• Court: U.S. District Court — Northern District of Illinois

741 F.Supp.2d 912

MB FINANCIAL BANK, N.A., Plaintiff,

v.Roy A. WALKER, Defendant.

No. 09 C 7380.

United States District Court, N.D. Illinois, Eastern Division.

Sept. 23, 2010.

Richard Allen Saldinger, Carrie E. Davenport, Stephen J. Raab, Shaw Gussis Fishman Glantz Wolfson & Towbin LLC, Chicago, IL, for Plaintiff.Brad Michael Johnston, Holland & Hart LLP, Reno, NV, Joseph Frank Spitzzeri, Genevieve Marie Lefevour, Johnson & Bell, Ltd., Chicago, IL, James Lee Gray, Holland & Hart, LLP, Greenwood Village, CO, for Defendant.

MEMORANDUM OPINION AND ORDER

JEFFREY COLE, United States Magistrate Judge.

MB Financial Bank (“the Bank”) has sued Roy Walker to recover $3.7 million for breach of a subordination agreement and a collateral assignment and for tortious interference with the Bank's $19 million credit agreement with WES Construction Company (“WES”). Mr. Walker was the president and majority shareholder of WES. ( Complaint, ¶¶ 1–9). The purpose of the credit agreement, in part, was to finance a leveraged employee stock ownership plan buyout of WES stock from its individual shareholders and to provide some working capital for WES. In order to facilitate the credit agreement, Mr. Walker entered into the subordination and collateral assignment agreement with the Bank. He received two subordinated promissory notes from WES, totaling a little over $5 million. On behalf of himself and WES, he agreed to subordinate all debts owed to him by WES and he assigned his interest in the promissory notes to the Bank. ( Complaint, ¶¶ 1–9, 22–26, 27–29). The Bank claims that he then orchestrated a series of self-dealing transactions through his various companies, including having WES satisfy its $5 million debt to him while owing the Bank over $7 million. ( Complaint, ¶¶ 8, 16–17, 31–33, 35, 37–40, 44–46, 50–51, 53–55).

Mr. Walker, who is from Nevada, has moved to dismiss the Bank's complaint for improper venue under Fed.R.Civ.P. 12(b)(3) and 28 U.S.C. § 1391. He points out that WES is a Nevada company doing business in Nevada, the agreements relate to loans the Bank made to WES in Nevada for use in Nevada, all of the alleged self-dealing and payments occurred in Nevada, and that “every event alleged in Plaintiff's complaint took place in Nevada.” ( Walker's Memorandum, at 9). The Bank's Complaint alleges conclusorily that “[v]enue is proper in this district pursuant to 28 U.S.C. § 1391(a)(2) because a substantial part of the events giving rise to this litigation occurred or otherwise arose in this district.” ( Complaint, ¶ 14).

The Complaint states that Mr. Walker is a Nevada citizen, and that all his companies, including WES, are Nevada corporations. ( Complaint, ¶¶ 3, 12). It concludes that Mr. Walker “transacted business in the State of Illinois and the contracts giving rise to this litigation are substantially connected with the State of Illinois.” ( Complaint, ¶¶ 13). At the same time, the Complaint indicates that all of the activities making up the breach and tortious interference claims occurred between 2005 and 2008 in Nevada. ( Complaint, ¶¶ 31–55, 62–66, 72–74, 79–83).

In its response to Mr. Walker's motion, the Bank claims that Mr. Walker acknowledged in his memorandum in support of his motion to dismiss that all of the agreements were negotiated and executed in Illinois. That overstates the matter somewhat. While it was conceded that Mr. Walker signed the agreements at the Bank's offices in Illinois, there was no concession that the contracts were negotiated here. In fact, the Memorandum is silent on the question of the locus of those negotiations. ( MB Financial Bank's Response, at 4; Walker's Memorandum, at 11).

The Bank also submits that the credit agreement it has with WES contains a provision that states that all disputes relating to the loan documents, which specifically include the subordination and collateral assignment agreements, must be resolved in Illinois if the Bank chooses. ( MB Financial Bank's Response, at 5–6). The credit agreement does include a provision stating that:

[t]he Borrower ... (b) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venues within the State of Illinois for the purpose of litigation to enforce this Agreement, the Notes or the other Loan Documents,....

However, “[t]he Borrower” was WES, not Mr. Walker. While Mr. Walker signed the agreement, he did so on behalf of WES as its president, not personally. This is no mere quiddity, but rather a fact of critical analytical significance. It is basic that one who signs a contract in a purely representative capacity is not personally bound by its terms. It is also true, however, that the fact that a person signs in what appears to be a representative capacity does not inevitably preclude a finding that the intent was to be personally bound as well. See e.g., Whitney National Bank v. Air Ambulance by B & C Flight Mgmt., Inc., 2006 WL 3741903 (S.D.Tex.2006); American Guild of Musical Artists v. Atlanta Municipal Theater, Inc., 310 F.Supp. 944 (N.D.Ga.1970). The Bank's response brief, while noting the fact of Mr. Walker's execution, does not attempt to explain how, despite Mr. Walker's execution as president of WES, he is personally bound by the waiver provision to which WES agreed or how, under basic principles of contract and agency, it can be deemed that he agreed personally to waive any objection to jurisdiction or venue in Illinois in the event he was personally sued.

It is not that there is not an argument that could perhaps be made. See e.g., Frietsch v. Refco, Inc., 56 F.3d 825, 827–28 (7th Cir.1995); Hugel v. Corporation of Lloyd's, 999 F.2d 206, 209–10 (7th Cir.1993). The difficulty is that the Bank's response brief did not make one or even advert to its possible existence. It simply assumed that despite his execution of the agreement as WES's president, Mr. Walker was bound by the waiver provision. But that assumption, itself, constitutes a waiver of the argument by the Bank. The Seventh Circuit has “made clear ... that it is not the obligation of [a] court to research and construct legal arguments open to parties, especially when they are represented by counsel, and [it] ha[s] warned that perfunctory and undeveloped arguments, and arguments that are unsupported by pertinent authority, are waived.” Judge v. Quinn, 612 F.3d 537, 557 (7th Cir.2010) (internal quotation marks omitted). Indeed, this theme finds repeated expression in the Seventh Circuit's cases. See e.g., Plan Trust Funds v. Royal Intern. Drywall and Decorating, Inc., 493 F.3d 782, 789 (7th Cir.2007); R.J. Reynolds Tobacco Co. v. Cigarettes Cheaper, 462 F.3d 690 (7th Cir.2006); Bretford Mfg., Inc. v. Smith System Mfg. Corp., 419 F.3d 576, 581 (7th Cir.2005); Estate of Moreland v. Dieter, 395 F.3d 747, 759 (7th Cir.2005); United States v. Cusimano, 148 F.3d 824, 828 n. 2 (7th Cir.1998); G. Heileman Brewing Co., Inc. v. Joseph Oat Corp., 848 F.2d 1415, 1418 (7th Cir.1988).

The arguments under § 1391(a)(2) are more substantially developed. To those issues we now turn. Section 1391(a)(2) provides that “[a] civil action wherein jurisdiction is founded only on diversity of citizenship may, ... be brought only in ... a judicial district in which a substantial part of the events or omissions giving rise to the claims occurred, or a substantial part of the property that is the subject of the action is situated.” ¹ The Bank claims that a substantial part of the events that gave rise to its lawsuit did, indeed, occur in this district. ( Complaint, ¶ 14). Beyond that, however, there is little elaboration.

It is not well-settled which party bears the burden of proof once venue is challenged. The Wright Miller treatise calls the rule that plaintiff bears the burden the “better rule” and the rule that “represents the weight of judicial authority.” 14D Wright Miller & Cooper, Federal Practice & Procedure, § 3826, at 555–62 (2007). Moore's Federal Practice treatise calls the rule that defendant bears the burden the “correct one.” 17 Moore's Federal Practice, § 110.01[5][c] (2004). Moore's assessment runs contrary to the weight of authority and appears to be based on the fact that improper venue is an affirmative defense, meaning that the defendant has the burden of proof. But so too is personal jurisdiction an affirmative defense, see e360 Insight v. The Spamhaus Project, 500 F.3d 594, 596 (7th Cir.2007); Heller Financial, Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1289 (7th Cir.1989), and the plaintiff has the burden of establishing it. Tamburo v. Dworkin, 601 F.3d 693, 700 (7th Cir.2010); GCIU–Employer Retirement Fund v. Goldfarb Corp., 565 F.3d 1018, 1023 (7th Cir.2009).

Moore's also notes that the defendant must put venue in issue or waive it. The same, though, is true of personal jurisdiction, Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 584, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999), and, moreover, a court may sua sponte transfer a case for improper venue. 28 U.S.C. §§ 1404(a); 1406(a); Trujillo v. Williams, 465 F.3d 1210, 1222 (10th Cir.2006); Janis v. Ashcroft, 348 F.3d 491, 493 (6th Cir.2003); Muldoon v. Tropitone Furniture Co., 1 F.3d 964, 966 (9th Cir.1993); Feller v. Brock, 802 F.2d 722, 729 (4th Cir.1986); United Financial Mortg. Corp. v. Bayshores Funding Corp., 245 F.Supp.2d 884, 896 (N.D.Ill.2002). Finally, the treatise concedes that placing the burden on the plaintiff is justified only in cases involving an exclusive venue statute, such as patent cases, reasoning that “[b]ecause the plaintiff has the burden of proving patent infringement, it makes sense to shift the burden of proof on the venue issue to the plaintiff....” But that would hold true for almost any type of claim a plaintiff brought.

The courts in this district have held that once venue is challenged, the plaintiff bears the burden of establishing it filed its...