Leonardo's, Inc. v. Greathall, Ltd.

• Decision Date: 31 May 1989
• Docket Number: No. 89 C 411.,89 C 411.
• Citation: 714 F. Supp. 949
• Parties: LEONARDO'S, INC., Plaintiff, v. GREATHALL, LTD., Richard Shapiro, and Bonnie Shapiro, Defendants.
• Court: U.S. District Court — Northern District of Illinois

714 F. Supp. 949

LEONARDO'S, INC., Plaintiff, v. GREATHALL, LTD., Richard Shapiro, and Bonnie Shapiro, Defendants.

No. 89 C 411.

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

May 31, 1989.

Steven Messner, Wilmette, Ill., for plaintiff.

Stephen L. Tyma, McDermott, Will & Emery, Chicago, Ill., Robert C. Sipkins, Bernick and Stern, St. Louis Park, Minn., for defendants.

MEMORANDUM OPINION

BRIAN BARNETT DUFF, District Judge.

Plaintiff Leonardo's, Inc. ("Leonardo") brings this diversity action against Greathall, Ltd. ("Greathall"), Richard Shapiro ("Richard") and Bonnie Shapiro ("Bonnie") for breach of contract and fraud. The defendants have moved to dismiss pursuant to Rule 12(b)(2) for lack of personal jurisdiction, and in the alternative, to transfer venue pursuant to 28 U.S.C. § 1404(a). The motion will be denied.

FACTS

The facts relevant to this motion are not in dispute, and come from the complaint as well as affidavits attached to the motion and response. Richard Hirsch ("Hirsch") is an Illinois resident. In 1981, he created Leonardo, an Illinois corporation. His corporation runs concessions at state fairs.

Richard and Bonnie are Minnesota residents. In 1971, they incorporated Greathall, a Wisconsin corporation, for the purpose of operating a summer Renaissance festival in the northern Illinois area. They christened the festival King Richard's Faire, and held the first one in the summer of 1972. From 1972 to 1974 the festival took place in Gurnee, Illinois, just a few miles south of the Wisconsin border. In 1975, they moved the fair to Bristol, Wisconsin.

From 1972 to late 1983, Robert Rogers served as General Manager of the fair. Rogers lived in Lake Forest, Illinois, and established an office, bank account, mailing address and phone number for the fair in Illinois. He also recruited Illinois concessionaires for the fair.

In late 1983, Rogers left Greathall's employ. Shortly thereafter, Greathall closed its Illinois office, bank account, and post office box. It retained the Illinois mailing address for informational purposes, and continued to do a substantial amount of advertising in the Chicago area.

When Rogers left, Richard took over management of the fair. In December, 1983, he contacted Hirsch and other concessionaires, requesting a meeting in Chicago to negotiate contracts for the coming season. After a series of negotiations, Greathall and Leonardo entered into a multi-year contract for the 1984, 1985 and 1986 seasons. During those three years, Leonardo operated lemonade stands at the fair.

When the contract expired, Richard telephoned Hirsch from Minnesota, and they agreed to a contract for the 1987 season nearly identical to the previous one. Richard mailed it to Hirsch in Illinois for his signature.

The 1987 fair did not do well. On December 2, 1987, Richard wrote to Hirsch, noted that 1987 had been a poor year for the fair, and indicated hopes for improvement in 1988. He also enclosed a contract for the 1988 fair, and told Hirsch that Leonardo's fees for the 1988 fair were due in Greathall's office by December 31. The contract again was nearly identical to the previous contracts, and stated that the fair would take place on the same location as the previous year. It also provided that it would be governed by Wisconsin law.

Hirsch executed the contract, and on December 22 sent Greathall $18,000 to reserve Leonardo's place in the 1988 fair. The fair never came. As it turns out, Greathall had stopped making payment on the fair's property in July, 1987 and had entered into a default foreclosure consent decree on July 14, 1987 relinquishing its rights to the property. Greathall did not refund Leonardo's $18,000, so Leonardo sued Greathall and the Shapiros for breach of contract and fraud. The defendants have moved to dismiss for lack of personal jurisdiction, or in the alternative, to transfer this case to the United States District Court for the Eastern District of Wisconsin.

DISCUSSION

Personal Jurisdiction

In the absence of a federal statute authorizing service of process, a federal court may exercise personal jurisdiction over an out-of-state defendant only as provided by the long-arm statute of the state in which the court sits. See Fed.R.Civ.P. 4(e); Omni Capital International v. Rudolf Wolff & Co., Ltd., 484 U.S. 97, 108 S.Ct. 404, 409-10, 98 L.Ed.2d 415 (1987). Further, at least in diversity cases, the exercise of jurisdiction must comport with Fourteenth Amendment due process. Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984); Mason v. F. Lli Luigi & Franco Dal Maschio, 832 F.2d 383 (7th Cir.1987).¹

Under the Illinois long-arm statute, a court may exercise jurisdiction over a defendant who either (1) has transacted any business within Illinois, or (2) has committed a tort in Illinois, provided that the cause of action arises from the jurisdictional act. Ill.Rev.Stat.1987 ch. 110, ¶ 2-209(a), (c). Leonardo contends that Greathall transacted business in Illinois from 1972 through late 1987 by hiring Illinois concessionaires for the Wisconsin fair, and further that Greathall committed a tort in Illinois by misrepresenting that it still owned the fairgrounds. The court need only address the first argument.

The defendants concede that they were transacting business in Illinois from 1972 through late 1983, when Rogers was their general manager.² They insist, however, that Greathall's Illinois business came to an end in early 1984, and that it thereafter transacted no business which could give rise to Illinois jurisdiction. Leonardo responds that Greathall continued to transact business within Illinois by maintaining their Illinois phone number and continuing to advertise and solicit concessionairs in Illinois, and that, in any case, the 1988 contract arose out of the earlier contacts with Illinois.

Leonardo's reliance on the Illinois phone number and advertisements rests on a confusion regarding the nature of their jurisdictional claim. In addition to the long-arm statute, Illinois courts long have recognized the "doing business" doctrine. This doctrine, a vestige of an era in which a state could assert jurisdiction over only those present within its borders (see Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565 (1877)), allows the court to assume jurisdiction over corporations with substantial business in Illinois, on the fiction that this business renders them "constructively present in this State." Cook Associates, Inc. v. Lexington United Corp., 87 Ill.2d 190, 199, 57 Ill.Dec. 730, 429 N.E.2d 847 (1981); Afirm, Inc. v. Frazee Paint & Wallcovering Co., 624 F.Supp. 973, 978 (N.D.Ill.1985). When proceeding under this doctrine, a plaintiff need not establish that his cause of action arose from the defendant's contacts with Illinois. Cook Associates, Inc. v. Lexington United Corp., 87 Ill.2d at 200, 57 Ill. Dec. 730, 429 N.E.2d 847; see also Helicopteros, Nacionales de Colombia v. Hall, 466 U.S. 408, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984).

Because Greathall's only 1987 contacts with Illinois were its advertisements, its informational phone number, and Richard's phone calls and mailings to Illinois, Leonardo wisely has not argued that Greathall was doing business in Illinois at the time. See Loggans v. Jewish Community Center, 113 Ill.App.3d 549, 556, 69 Ill.Dec. 484, 447 N.E.2d 919 (1983). Yet, Leonardo errs when it attempts to use the phone number and advertisements as predicates for jurisdiction under the long-arm statute: Since the record reveals no connection between these jurisdictional acts and Leonardo's causes of action, they cannot serve as the basis for jurisdiction under the long-arm statute. See Berks v. Rib Mountain Ski Corp., 571 F.Supp. 500 (N.D.Ill.1983).

The phone calls and subsequent mailings to Hirsch, by contrast, did give rise to the claims in this case. In Gordon v. Tow, 148 Ill.App.3d 275, 101 Ill.Dec. 394, 498 N.E.2d 718 (1986), the court undertook an extensive examination of when telephone calls and mailings constitute jurisdictional acts under the long-arm statute, and set forth a multifactor test for determining when an out-of-state defendant transacts business within Illinois for jurisdictional purposes:

The determination of whether defendant sufficiently transacted business in Illinois so as to avail himself of the benefits of Illinois law requires consideration of several factors: who initiated the transaction; where the contract was entered into; and where the performance of the contract was to take place. While none of these factors is controlling, each of them is significant.

Id. at 280, 101 Ill.Dec. 394, 498 N.E.2d 718; see also Empress International, Ltd. v. Riverside Seafoods, Inc., 112 Ill.App.3d 149, 153, 67 Ill.Dec. 891, 445 N.E.2d 371 (1983).

Because all three factors weighed against exercising jurisdiction in Gordon, the court did not need to strike a balance among them. The instant case, however, presents a somewhat trickier situation. Greathall initiated the 1988 contract by mailing it to Hirsch, and Hirsch executed it in Illinois. The place of performance, however, was in Wisconsin. Moreover, the fact that the contract provided that Wisconsin law would govern, though not specifically included in the Gordon test, certainly weighs against finding that Greathall "sought to avail himself of the benefits and burdens of Illinois law." Gordon, 148 Ill. App.3d at 280, 101 Ill.Dec. 394, 498 N.E.2d 718.

Illinois cases provide little guidance in balancing these factors. Compare Woodfield Ford, Inc. v. Akins Ford Corp., 77 Ill.App.3d 343, 32 Ill.Dec. 750, 395 N.E.2d 1131 (1979) (plaintiff initiated; formation in Illinois; performance outside Illinois; no choice of law provision; no jurisdiction) with AAAA Creative, Inc. v. Sovereign Holidays, 76 Ill.App.3d 514, 32 Ill.Dec. 119, 395 N.E.2d 66 (1979) (defendant initiated; formation in Illinois, performance in Europe; no choice of law provision;...