Monco v. Zoltek Corp.

• Decision Date: 21 September 2018
• Docket Number: No. 17 C 6882,17 C 6882
• Citation: 342 F.Supp.3d 829
• Parties: Dean A. MONCO; John S. Mortimer; Wood, Phillips, Katz, Clark & Mortimer, Plaintiffs, v. ZOLTEK CORPORATION; Zsolt Rumy; and Toray Industries, Inc., Defendants.
• Court: U.S. District Court — Northern District of Illinois

342 F.Supp.3d 829

Dean A. MONCO; John S. Mortimer; Wood, Phillips, Katz, Clark & Mortimer, Plaintiffs,

v.ZOLTEK CORPORATION; Zsolt Rumy; and Toray Industries, Inc., Defendants.

No. 17 C 6882

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

Signed September 21, 2018

Paul K. Vickrey, Dylan Michael Brown, Patrick F. Solon, Vitale, Vickrey, Niro & Gasey LLP, Lee F. Grossman, Mark M. Grossman, Grossman Law Offices, Chicago, IL, for Plaintiffs.

David B. Jinkins, Matthew A. Braunel, Robyn H. Ast-Gmoser, Thompson Coburn LLP, St. Louis, MO, Vincent P. Schmeltz, III, Barnes & Thornburg LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION & ORDER

Honorable Thomas M. Durkin, United States District Judge

Plaintiffs Dean A. Monco, John S. Mortimer, and Wood, Phillips, Katz, Clark, & Mortimer allege that defendant Zsolt Rumy tortiously interfered with plaintiffs' expectancy of recovering legal fees for representing defendant Zoltek Corporation in patent litigation spanning the course of 20 years. Plaintiffs also seek recovery from defendants Zoltek and Toray Industries, Inc. (which purchased Zoltek in 2014) under a quantum meruit theory. Before the Court is Rumy's motion to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2) [37]. For the reasons explained below, the Court grants Rumy's motion 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 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.

BACKGROUND

Zoltek is a carbon fiber manufacturer based in Missouri. R. 28 ¶ 9. Rumy, a Florida or Missouri citizen,¹ founded Zoltek and was its majority shareholder until Toray (a Japanese corporation) acquired Zoltek in 2014. Id. ¶¶ 10-11, 17, 74. Plaintiff Wood Phillips is an Illinois law firm, and plaintiffs Monco and Mortimer are attorneys with Wood Phillips licensed in Illinois. Id. ¶¶ 6-8.

In 1996, Zoltek hired Monco and Mortimer to represent Zoltek in litigation conducted in Washington, D.C. to enforce a Zoltek patent ("Zoltek litigation"). Id. ¶¶ 1, 6-8, 16, 21-23. That litigation ended up lasting 20 years. Id. ¶ 2. Payment for Monco and Mortimer's work was largely on a contingency basis. Id. ¶¶ 23-24, 61. Ultimately, the relationship between Zoltek and Monco and Mortimer soured. After a crucial meeting in St. Louis in July 2016 scheduled by Zoltek's other outside counsel (Missouri-based Thompson Coburn), Zoltek terminated Monco and Mortimer as counsel, substituted another firm as lead counsel in the Zoltek litigation, and refused to pay Monco and Mortimer for overdue bills. Id. ¶¶ 81-83. Shortly thereafter, the Zoltek litigation settled for $20 million. Id. ¶¶ 89-90. Plaintiffs apparently did not recover any of that amount.

Plaintiffs filed suit in September 2017. R. 1. Plaintiffs amended their complaint in January 2018 to raise two claims: a claim against Rumy for tortious interference with prospective economic advantage (Count I), and a claim against Zoltek and Toray for recovery under quantum meruit (Count II). R. 28 ¶¶ 91-108. Both claims seek compensatory damages for legal fees and out-of-pocket expenses, and plaintiffs also seek punitive damages against Rumy. Id.

The amended complaint alleges several bases for specific and general personal jurisdiction over Rumy. As plaintiffs' counsel made clear at oral argument, however (R. 127 at 9-11), plaintiffs are currently asserting only one of those bases: that "[t]his Court ... has specific jurisdiction over Rumy because he committed the intentional tortious acts set forth ... in Count I, causing foreseeable injury to Plaintiffs in Illinois." R. 28 ¶ 15.

Count I sets forth the intentional tortious acts based on which plaintiffs claim specific personal jurisdiction. Plaintiffs allege that Rumy "purposefully interfered" with plaintiffs' attorney-client "relationship and [fees] expectancy" with Zoltek by "inducing Zoltek and Toray to discharge Monco/Mortimer as their attorneys." Id. ¶ 94. Specifically, plaintiffs allege that "Rumy made false and misleading statements to Toray about the Zoltek Litigation and Monco/Mortimer," including a representation "that the value of the Zoltek Litigation was zero" and that Monco and Mortimer "had jeopardized the case by not taking damage discovery (even though discovery had been bifurcated and was still open at the time of settlement)." Id. "Through these machinations," plaintiffs allege, "Rumy was able to obtain Toray's assent to Rumy being personally paid a significant share, if not all, of the recoveries from the Zoltek Litigation." Id.

In other words, as currently pleaded, plaintiffs' tortious interference claim is based on Rumy's communications about plaintiffs' work on and about the value of the D.C.-based litigation. Although the amended complaint does not specify where and precisely to whom Rumy's communications took place, Rumy argues that if they occurred at all, the communications occurred during the meeting in St. Louis in July 2016 and were made to Missouri-based Zoltek executive personnel or their Missouri-based outside counsel Thompson Coburn. R. 38 at 4. Plaintiffs do not dispute in their response that the alleged communications were between Rumy and Zoltek personnel and/or Thompson Coburn and occurred in St. Louis.

Rumy filed a motion to dismiss for lack of personal jurisdiction in February 2018. R. 37. At the parties' joint request, this Court held oral argument on the motion in May 2018. R. 127. At oral argument, Rumy conceded that Missouri would have personal jurisdiction over him, but denied that Illinois does based on the tort as alleged. Id. at 34.

ANALYSIS

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.

There are two branches of personal jurisdiction theory—general and specific. Plaintiffs assert only specific personal jurisdiction over Rumy. R. 43 at 1. Specific personal jurisdiction grows out of "the relationship among the defendant, the forum, and the litigation." Walden v. Fiore , 571 U.S. 277, 284, 134 S.Ct. 1115, 188 L.Ed.2d 12 (2014). The "three essential requirements" for specific personal jurisdiction are: "(1) the defendant must have purposefully availed himself of the privilege of conducting business in the forum state or purposefully directed his activities at the state; (2) the alleged injury must have arisen from the defendant's forum-related activities; and (3) the exercise of jurisdiction must comport with traditional notions of fair play and substantial justice." Felland v. Clifton , 682 F.3d 665, 673 (7th Cir. 2012).

Where, like here, "a plaintiff's claim is for an intentional tort, the [first prong] focuses on whether the conduct underlying the claim[ ] was purposely directed at the forum state." Id. at 674. The parties have very different understandings of what constitutes purposeful direction "at" Illinois. Rumy focuses on the fact that his alleged tortious statements occurred while he was in Missouri. Plaintiffs, on the other hand, focus on the fact that regardless of where the statements took place, they focused on Illinois plaintiffs and their business.

This area of the law is evolving, which complicates the analysis. But the Court agrees with Rumy that the more recent case law, all following the Supreme Court's decision in Walden , is on Rumy's side. In Walden , the plaintiff alleged that the defendant had wrongfully seized cash in Georgia, knowing that his act would injure the plaintiff in Nevada. 571 U.S. at 281, 134 S.Ct. 1115. The Supreme Court rejected the court of appeals' view that the defendant's knowledge that the injury would be felt in Nevada and the fact that he "expressly aimed" his conduct at a Nevada resident justify compelling the defendant to defend himself in Nevada. Id. at 282, 134 S.Ct. 1115.

Walden emphasized that "a state may assert specific jurisdiction (that is, jurisdiction based on a particular transaction) only if the defendant has ‘a substantial connection with the forum State.’ " Ariel Investments, LLC v. Ariel Capital Advisors LLC , 881 F.3d 520, 522 (7th Cir. 2018) (quoting Walden , 571 U.S. at 284, 134 S.Ct. 1115 ). "Not just any contacts will do"—the relevant contacts must be " ‘suit-related. ’ " Advanced Tactical Ordnance Sys., LLC v. Real Action Paintball, Inc. , 751 F.3d 796, 801 (7th Cir. 2014) (quoting Walden , 571 U.S. at 284, 134 S.Ct. 1115 ) (emphasis in original). And they must be "contacts that the defendant himself creates with the forum." Walden , 571 U.S. at 284, 134 S.Ct. 1115 (emphasis in original). The principles apply equally in the tort context. Id. at 286, 134 S.Ct. 1115.

With its focus on defendant's own suit-related contacts with the forum state, the Supreme Court in Walden put...