In re Teknek, LLC

Citation354 B.R. 181
Decision Date16 October 2006
Docket NumberAdversary No. 06 A 00412.,Bankruptcy No. 05 B 27545.
PartiesIn re TEKNEK, LLC, Debtor. Phillip Levey, Trustee, Plaintiff, v. Sheila Hamilton, Jonathan Kennett, Mark Rollinson, Tekena USA, LLC, and Kenham, LLC, Defendants.
CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

Neal Levin, Joji Takada, Freeborn & Peters, Lit, Chicago, IL, for Plaintiff/Trustee, the Respondent.

Jeffrey R. Platt, Coman & Anderson, P.C., Chicago, IL, for Defendant, the Movant.

MEMORANDUM OPINION on "Motion to Dismiss Amended Adversary Proceeding Against Sheila Hamlitor and Jonathan Kennett for Lack of Personal Jurisdiction, Forum Non Conveniens and Failure to State a Claim Pursuant to Rule 7012(b) of time Federal Rules of Bankruptcy Procedure"

JACQUELINE P. COX, Bankruptcy Judge.

Pursuant to Federal Rule of Bankruptcy Procedure 7012(b) and Federal Rule of Civil Procedure 12(b)(2) and (b)(6), two citizens of the United Kingdom, defendants Sheila Hamilton and Jonathan Kennett, have filed a motion to dismiss them from the instant adversary proceeding brought by the Chapter 7 bankruptcy trustee, alleging that this U.S. Bankruptcy Court lacks personal jurisdiction over them; that the doctrine of forum non conveniens entitles them to a dismissal; and that the complaint fails to state any causes of action against them.

Background and Nature of the Civil Complaint

Teknek, LLC filed a Chapter 7 bankruptcy case on July 12, 2005,1 disclosing $73.22 in total assets and total liabilities of $3,788,609.57. Over ninety-nine percent of these liabilities, or approximately $3,779,000, belongs to a single unsecured judgment creditor, Systems Division, Inc. ("SDI"), who prevailed in a patent-infringement action. The two members of the debtor are the moving defendants: Jonathan Kennett ("Kennett") and Sheila Hamilton ("Hamilton").

The complaint sets forth the following background: Defendants Hamilton and Kennett formed the debtor Teknek, LLC in Illinois in 1996 to sell the circuitry boards, cleaning devices, and other products of the Scottish concern Teknek Electronics, Ltd. in the United States. Hamilton, as vice president, owns 15% of the debtor Teknek, LLC, while Kennett, as president, owns 85%. The Chapter 7 debtor Teknek, LLC and two of the adversary proceeding defendants, Teknek America/Kenham, LLC and Tekena USA, LLC, were each, at some point in time, U.S. distributors for one of two affiliated Scottish "Teknek" companies, the first known as Teknek Electronics and the second known as Teknek Manufacturing after a foreign insolvency proceeding for the first one. The three American "Teknek" companies implicated in this adversary proceeding do not have parent-subsidiary relationships with other "Teknek" companies; these companies are directly and separately owned by defendant LLC members Kennett and Hamilton — with the notable exception of Tekena USA, LLC, which the four former employees of Teknek, LLC and Teknek America/Kenham, LLC own. A U.S. distributorship for the Scottish "Teknek" group of companies has operated out of Illinois using three successive Illinois limited liability companies: the Chapter 7 debtor Teknek, LLC; defendant Teknek America/Kenham, LLC; and defendant Tekena USA, LLC.

After the Chapter 7 trustee retained as special bankruptcy counsel the law firm that had represented creditor SDI in attempting to collect the money judgment, see 11 U.S.C. § 327(c), he filed a five-count "Verified Adversary Complaint" on January 19, 2006. The complaint named as defendants six individuals, including the movants herein, Kennett and Hamilton, as well as the two business entities carrying on the two successive U.S. distributorships for Teknek-brand products: Teknek America/Kenham, LLC and Tekena USA, LLC. The other four individual defendants are members of the limited liability company Tekena USA, LLC and former employees of the prior two distributorships.2 Count I alleges factually and constructively fraudulent conveyances under 11 U.S.C. § 544(b) and 740 Ill. Comp. Stat. 160/5 in the form of Teknek, LLC's transfer of 1) certain tangible and intangible business assets to defendant Teknek America/Kenham, LLC and 2) large amounts of money to defendants Kennett and Hamilton; Tekena USA is alleged to be a subsequent transferee under 11 U.S.C. § 550 with respect to the first set of transfers. Count II requests that the corporate veil of the Chapter 7 debtor be pierced so that the patent-infringement judgment will be enforceable directly against Kennett and Hamilton. Count III alleges that Kennett and Hamilton received wrongful distributions of profit from a limited liability company within the meaning of 805 Ill. Comp. Stat. 180/25-30 and -35. Count IV alleges that Kennett and Hamilton breached fiduciary duties to the debtor and its creditors within the meaning of 805 Ill. Comp. Stat. 180/15-3. Count V is not at issue in this motion to dismiss.

A. Motion to Dismiss for Lack of Personal Jurisdiction and Failure to State a Claim

Kennett and Hamilton contend that the only interests present in this civil proceeding are those of the sole noninsider bankruptcy-estate creditor, SDI, which represents a California interest, and two citizens of the United Kingdom, Kennett and Hamilton. Illinois allegedly has no interest in this civil proceeding whatsoever. In spite of the fact that the limited liability company of which they are members is physically located in, doing business in, and organized under the laws of Illinois, Kennett and Hamilton contend that their only remotely relevant contacts with Illinois are three visits for international trade shows since 2003 and that their attendance at these shows is not at issue under any of the four counts in the civil complaint. In the two affidavits supporting this motion, the defendants include none of their member conduct with respect to the Chapter 7 debtor Teknek, LLC, apparently based on the understanding that the conduct of a limited-liability-company member is the conduct of the LLC itself. Moreover, the defendants assert that to the extent they are accused of conduct constituting the initiation and receipt of fraudulent conveyances they engaged in all of the planning, direction, and control of such conduct while they were in Scotland, not in Illinois. To the extent that this same conduct had effects elsewhere, they assert that those effects could only have been in California, where creditor SD: has its base, not in Illinois. Regarding the effects of their conduct in Illinois, Kennett and Hamilton further cite a federal diversity-jurisdiction case utilizing the Illinois long-arm statute and related case law for the proposition that when all of a defendant's allegedly tortious conduct occurs outside Illinois and the tort is completed in Illinois only because an economic injury transpired in Illinois, the plaintiff may establish personal jurisdiction over the defendant only if the plaintiff establishes that the defendant had an intent to affect an Illinois interest. See Celozzi v. Boot, 2030 WL 1141558 (N.D.Ill. Aug. 11, 2000). Since Kennett and Hamilton contend that the only economic interest affected is that of sole bankruptcy creditor SDI in California, they reason that they could not have had an intent to affect an Illinois interest and thus could not be subject to specific personal jurisdiction under Illinois law.

These arguments are based on at least three premises we will examine: that the point of reference for the grouping of minimum contacts for a civil proceeding in bankruptcy is a single state such as Illinois; that an Illinois limited liability company rendered into Chapter '1 insolvency through a defendant-member's transfers is not itself an affected Illinois economic interest; and that a business entity's protective veil shields an individual officer's conduct on behalf of that entity from inclusion among the minimum contacts aggregated for purposes of personal jurisdiction over such individual.

Kennett and Hamilton start with a complaint that the Chapter trustee failed to affirmatively plead the allegations of personal jurisdiction. However, a complaint commencing a civil proceeding must allege the basis for subject matter jurisdiction but need not allege the basis for personal jurisdiction. Fed. R. Civ. Pro. 8(a); Purdue Research Foundation v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir.2003); In re Enron Corp., 316 B.R. 434, 439-40 (Bankr.S.D.N.Y.2004); Federalpha Steel LLC Creditors Trust v. Fed. Pipe & Steel Corp. (In re Federalpha Steel LLC), 341 B.R. 872, 884 (Bankr.N.D.Ill. 2006). Only if the defendant actually challenges the federal court's personal jurisdiction must the plaintiff establish by affidavit or hearing that the court has personal jurisdiction over the defendant. Purdue Research Foundation, 338 F.3d at 782; Federalpha Steel LLC Creditors Trust, 341 B.R. at 884.

For a preliminary dispute over personal jurisdiction, the Court makes factual determinations in one of two ways, depending on whether an evidentiary hearing is held. "It may determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the motion; or it may conduct an evidentiary hearing on the merits of the motion." Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2nd Cir.1981). Where no evidentiary hearing is held, as in this case, the Court considers the allegations of the complaint as well as written evidentiary submissions and affidavits, if any, from both sides, e.g., Merkel Associates, Inc. v. Bellofram Corp., 437 F.Supp. 612, 616 (W.D.N.Y.1977); Interlease Aviation Investors II (Aloha) L.L.C. v. Vanguard Airlines, 262 F.Supp.2d 898, 904-05 & n. 3 (N.D.Ill. 2003), and the plaintiff need only demonstrate a prima facie showing of personal jurisdiction. See...

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