Club Assistance Program, Inc. v. Zukerman, 84 C 1699.

• Decision Date: 10 September 1984
• Docket Number: No. 84 C 1699.,84 C 1699.
• Citation: 594 F. Supp. 341
• Court: U.S. District Court — Northern District of Illinois
• Parties: CLUB ASSISTANCE PROGRAM, INC., Plaintiff, v. Jack J. ZUKERMAN, et al., Defendants.

594 F. Supp. 341

CLUB ASSISTANCE PROGRAM, INC., Plaintiff, v. Jack J. ZUKERMAN, et al., Defendants.

No. 84 C 1699.

United States District Court, N.D. Illinois, E.D.

September 10, 1984.

Anthony C. Valiulis and Kenneth A. Wexler, Much, Shelist, Freed, Denenberg, Ament & Eiger, Chicago, Ill., for plaintiff.

Anthony J. Pauletto, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

On April 27, 1984 Jack Zukerman ("Zukerman"), William Feldstein, Jr. ("Feldstein") and Murray Scheer ("Scheer") moved under Fed.R.Civ.P. ("Rule") 12(b)(2) to dismiss the First Amended Complaint (the "Complaint") of Club Assistance Program, Inc. ("CAP"). Eight days later they moved under Rule 12(b)(3) for change of venue. For the reasons stated in this memorandum opinion and order defendants' Rule 12(b)(3) motion is denied, while their Rule 12(b)(2) motion is granted in part and denied in part.

Facts¹

Defendants are officers and directors of Delaware Genesis, Inc. ("Genesis"),² a Los Angeles-based company "in the business of warehousing, marketing, and selling weight control products, diets, food packages, behavior modification programs, and other health related plans and items" (Complaint ¶ 6). On May 27, 1983 Genesis, acting through defendants, entered into an agreement with CAP (the "Contract") for marketing-consultant services to help promote sales of Genesis' products in Illinois. Since that time Genesis has not paid CAP all money due, or delivered any of the Genesis stock to which CAP is entitled, under the Contract. On February 29, 1984 Genesis filed a petition for Chapter 11 bankruptcy reorganization in the Central District of California.

CAP claims defendants are responsible for Genesis' incomplete performance of the Contract because they looted, and generally took unreasonable profits from, Genesis. CAP asserts defendants acted against it specifically in an effort to hide their wrongdoing by deliberately misinterpreting the Contract, then lulling CAP into a false sense of security by misrepresenting to CAP that Genesis would be able to pay its debts. Those misrepresentations were effectuated by two telephone calls (one on November 11 and the other on December 23, 1983) between Zukerman in California and CAP principal Alan Schwartz ("Schwartz") in Illinois,³ with the knowledge and approval of Feldstein and Scheer. Defendants' conduct is assertedly actionable as (1) a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968 (Count I), (2) tortious interference with the Contract (Count II), (3) fraud (Count III), (4) breach of fiduciary duties to Genesis' stockholders (Count IV) and (5) breach of the Contract by Genesis as defendants' alter ego (Count V).

Venue

Defendants did not move for change of venue under Rule 12(b)(3)⁴ until eight days after they had moved (in lieu of a responsive pleading) to dismiss under Rule 12(b)(2) for want of personal jurisdiction. Their Rule 12(b)(3) position is therefore waived.

Rule 12(h)(1) provides in relevant part:

A defense of lack of jurisdiction over the person, improper venue, insufficiency of process, or insufficiency of service of process is waived

(A) if omitted from a motion made in lieu of a responsive pleading in the circumstances described in subdivision (g) which provides for consolidation of most defenses in a single motion....

Rule 12(h)(1) had been amended to that form in 1966 to eliminate a previously-existing ambiguity. Notes of Advisory Committee on Rule 12(h), 1966 Amendment, state:

Amended subdivision (h)(1)(A) eliminates the ambiguity and states that certain specified defenses which were available to a party when he made a preanswer motion, but which he omitted from the motion, are waived.... A party who by motion invites the court to pass upon a threshold defense should bring forward all the specified defenses he then has and thus allow the court to do a reasonably complete job. The waiver reinforces the policy of subdivision (g) forbidding successive motions.

* * * * * *

Since the language of the subdivision is made clear, the party is put on fair notice of the effect of his actions and omissions and can guard himself against unintended waiver.

Defendants' R. Mem. 2 "responds" to CAP's waiver argument in one short conclusory paragraph:

The First Amended Complaint was filed on April 20, 1984. Within the time allowed by this Court, the Defendants filed both a Motion to Dismiss and a Motion to Transfer Venue. The claim by the Plaintiff that the Venue motion was waived is without merit.

Defendants have offered no support for the idea that successive pre-answer motions may form a permissible exception to Rule 12(h)(1) just because they are all filed within the time allowed defendants to answer or otherwise plead. Nor have defendants offered any explanation for their failure to consolidate their motions in the face of Rule 12(h)(1)'s clear language. Their motion for a Rule 12(b)(3) change of venue is denied.

All the same, this action's at-best-tenuous hold on Illinois indicates both (1) the substantial likelihood a timely Rule 12(b)(3) motion would have been granted and (2) perhaps more important, the considerations identified in 28 U.S.C. § 1404(a) ("Section 1404(a)") appear to point to a California situs for the litigation. Accordingly this Rule 12(b)(3) denial is without prejudice to defendants' assertion of a Section 1404(a) motion. In the meantime, in the interests of judicial economy this Court will deal with defendants' Rule 12(b)(2) motion — thus avoiding the delays that would be occasioned if a transferee court had to familiarize itself with the issues and applicable law.⁵

Personal Jurisdiction

Federal courts sitting in Illinois must begin their analysis of personal jurisdiction with the question whether Illinois' long-arm statute, Ill.Rev.Stat. ch. 110, ¶ 2-209 ("Section 2-209") authorizes service of process on defendants. Its statutory limitations are not significantly different from those imposed by the federal Constitution, though in Green v. Advance Ross Electronics Corp., 86 Ill.2d 431, 436-37, 56 Ill.Dec. 657, 660, 427 N.E.2d 1203, 1206 (1981) the Illinois Supreme Court issued its declaration of independence from any ongoing federal expansion of the Due Process Clause. What that means is that the reach of Section 2-209 may lie within or may touch, but cannot extend outside, the fence marked out by due process requirements as defined in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945) and its progeny. See Felicia, Ltd. v. Gulf American Barge, Ltd., 555 F.Supp. 801, 804 (N.D.Ill.1983).

Section 2-209(c) provides plaintiffs can invoke defendants' contacts with Illinois only to the extent plaintiffs' causes of action "arise from" those contacts. Courts agree a cause of action that does not "arise from" defendants' contacts with Illinois cannot be tried in Illinois on the theory it is pendent to another cause of action that does "arise from" defendants' contacts with Illinois. Rather, each cause of action must be supported by sufficient contacts. See Mergenthaler Linotype Co. v. Leonard Storch Enterprises, Inc., 66 Ill.App.3d 789, 800, 23 Ill.Dec. 352, 360, 383 N.E.2d 1379, 1387 (1st Dist.1978).⁶

Thus it is necessary to do what neither side has done: examine each of CAP's theories of recovery to see whether they arise from sufficient Illinois contacts by defendants. To promote analytical clarity, Complaint Counts II and III will be considered before returning to Count I.

Counts II and III

Count II (tortious interference with economic relations) and Count III (fraud) are both traditional state law tort claims. Without stating to just which counts it intends its arguments to apply, CAP asserts defendants have both (1) transacted business in Illinois (Section 2-209(a)(1)) and (2) committed tortious acts in Illinois (Section 2-209(a)(2)).

CAP's transaction-of-business contention cannot prevail as to Counts II and III. CAP claims defendants transacted business in Illinois when they visited the Chicago area to negotiate the Contract. But defendants themselves did not transact business for purposes of those counts. Instead they came to Illinois only to transact business for Genesis. Under Illinois law defendants cannot be haled into court in Illinois on the basis of acts committed here solely as fiduciaries of their corporation. Hurletron Whittier, Inc. v. Barda, 82 Ill. App.3d 443, 447, 37 Ill.Dec. 838, 841, 402 N.E.2d 840, 843 (1st Dist.1980); Mergenthaler, 66 Ill.App.3d at 797, 23 Ill.Dec. at 358, 383 N.E.2d at 1385. Thus Counts II and III did not arise from any transaction of Illinois business by defendants.

Defendants did, however, commit tortious acts in Illinois from which Counts II and III may be said to have arisen. As alleged in the Complaint, those acts were undertaken on defendants' own behalf in such a way as to impose personal liability on themselves. In such circumstances defendants cannot invoke Illinois' "fiduciary shield," because their actions were not taken only on their corporation's behalf. While Illinois cases have not articulated that precise legal proposition, Oxmans' Erwin Meat Co. v. Blacketer, 86 Wis.2d 683, 692-93, 273 N.W.2d 285, 289 (1979) illustrates the point.⁷

Commission of a tortious act in Illinois does not require defendants' physical presence here. Section 2-209(a)(2)'s general rule is that a tortious act occurs where the last event necessary to create liability occurs — usually where the plaintiff's injury occurs. Because CAP's alleged injury was to its pocketbook and that pocketbook is located in Illinois where it resides, under basic long-arm jurisdiction principles it could be said the torts alleged in Counts II and III were committed in Illinois. See, e.g., Bodine's, 494 F.Supp. at 1282.

Since the decision in Bodine's, with its conventional approach to determining the location of tortious...