Urban 8 Danville Corp. v. Nationwide Affordable Hous. Fund 4, LLC
| Decision Date | 09 June 2020 |
| Docket Number | No. 19 C 03171,19 C 03171 |
| Parties | URBAN 8 DANVILLE CORPORATION, and URBAN 8 MACOMB CORPORATION, Plaintiffs, v. NATIONWIDE AFFORDABLE HOUSING FUND 4, LLC, SCDC, LLC, and WENTWOOD CAPITAL ADVISORS, L.P., Defendants |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION & ORDER
Before the Court is Wentwood Capital Advisor's motion to dismiss for lack of personal jurisdiction. (Dkt. 32). For the reasons below, the Court denies Wentwood's motion [32].
This case stems from a business dispute between Plaintiffs and Defendants, "the details of which are complicated and mostly extraneous to this opinion." Nationwide Affordable Housing Fund 4, LLC v. Urban 8 Danville Corporation, No. 2:19 C 1848, 2019 WL 5629930, at *1 *(S.D. Ohio Oct. 30, 2019). The facts relevant to this motion are as follows.1
The Urban Danville Limited Partnership and the Urban Macomb Limited Partnership were formed for the purpose of owning and operating affordable housing developments for elderly low-income residents pursuant to the low-income housing tax credit ("LIHTC") program. 26 U.S.C. § 42. Plaintiff Urban 8 Danville Corporation is the General Partner for the Urban Danville Limited Partnership, and Plaintiff Urban 8 Macomb Corporation is the General Partner for the Urban Macomb Limited Partnership. Both General Partners are Illinois Corporations, both Limited Partnerships are Illinois limited partnerships, and each housing development is located in Illinois.
Nationwide Affordable Housing Fund 4, LLC ("Nationwide") is a limited liability company with one managing member, Wentwood. Wentwood is also the sole member in SCDC, LLC ("SCDC"). Nationwide and SCDC are Limited Partners in both Urban Limited Partnerships. Wentwood is a Texas-based limited partnership, and Nationwide and SCDC are both Ohio limited liability companies.
In addition to being the sole member of Nationwide and SCDC, Wentwood is Nationwide and SCDC's asset manager.2 Wentwood manages Nationwide's and SCDC's investments in the Urban Limited Partnerships. According to Wentwood, it is paid on a flat-fee contractual basis, receiving $4,000 per year per investment partnership it manages. In support of this assertion, Wentwood provides a copy of its written asset management agreement with Nationwide, which describes thereferenced compensation scheme. (Dkt. 34, Ex. 2, 6). Plaintiffs contest this assertion, claiming that Wentwood's compensation is performance based. Plaintiffs rely on a picture of Wentwood's website to support the assertion that Wentwood's compensation is performance based: "Instead of charging front end fees for multi-year management obligations as most LIHTC syndicators do, our compensation is performance based, and our interests are aligned with those of our investors." .3
The parties also dispute whether Wentwood owns any interests in the Urban Limited Partnerships. Plaintiffs claim Wentwood has ownership interests in the Urban Limited Partnerships, while Wentwood denies this. Plaintiffs point to their own Amended Counterclaims and the Wentwood website in support, while Wentwood cites to a declaration by George David Sebastian, President of Wentwood and SCDC. (Dkt. 34, ¶¶ 13-16).
It is undisputed that in its capacity as asset manager, Wentwood has communicated with Urban 8 Danville Corporation and Urban 8 Macomb Corporation via telephone and email and has even visited Illinois to meet with the two Plaintiffs. (Id. at ¶ 17).
The Urban Danville Limited Partnership Agreement and the Urban Macomb Limited Partnership Agreement (the "Agreements") each contain a provision (the "Option Provision") entitling the General Partners to purchase the Limited Partners' property interests upon exercise of the option during a designated period. The General Partners assert that they timely exercised their option to purchase the Limited Partners' interests. (Dkt. 1 ¶ 58; Dkt 1, Ex. C). Defendant Limited Partners disagreed and demanded the General Partners market the property for sale. (Dkt. 1; Ex. E). This lawsuit followed, along with Wentwood's motion to dismiss for lack of personal jurisdiction. (Dkt. 32). Wentwood argues that it lacks the requisite minimum contacts to satisfy personal jurisdiction, and that even if it did, any action directed at Illinois was not on its own behalf but on behalf of the Limited Partners.
A challenge to a court's exercise of personal jurisdiction over a defendant is made under Federal Rule of Civil Procedure 12(b)(2). "Federal courts ordinarily follow state law in determining the bounds of their jurisdiction over persons." Walden v. Fiore, 571 U.S. 277, 283, 134 S.Ct. 1115, 188 L.Ed.2d 12 (2014) (quoting Daimler AG v. Bauman, 571 U.S. 117, 134 S.Ct. 746, 187 L.Ed.2d 624 (2014)). The Illinois long-arm statute requires nothing more than the standard for federal due process: that the defendant have sufficient contact with the forum state "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Brook v. McCormley, 873 F.3d 549, 552 (7th Cir. 2017) (quoting Int'l Shoe Co. v.Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). Physical presence in the forum state is not required, but there must be sufficient minimum contacts such that the defendant "should reasonably anticipate being haled into court there." Brook v. McCormley, 873 F.3d 549, 552 (7th Cir. 2017) Once personal jurisdiction is challenged, plaintiff has the burden of proving personal jurisdiction.4 Walls v. VRE Chicago Eleven, LLC, 344 F.Supp.3d 932, 943 (N.D. Ill. 2018) (citing Northern Grain Mktg., LLC v. Greving, 743 F.3d 487, 491 (7th Cir. 2014)).
There are two types of personal jurisdiction. General jurisdiction exists when the party's affiliations with the forum state "are so constant and pervasive as to render [it] essentially at home" there. Daimler, 571 U.S. 117, 122, 134 S.Ct. 746, 187 L.Ed.2d 624 (2014). Plaintiffs have not asserted that this Court may exercise general jurisdiction over Wentwood, so this Court considers only specific jurisdiction. Specific jurisdiction grows out of "the relationship among the defendant, the forum, and the litigation." Walden, 571 U.S. at 284. This type of jurisdiction requires that "(1) the defendant [ ] 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) theexercise of jurisdiction must comport with traditional notions of fair play and substantial justice." Felland v. Clifton, 682 F.3d 665, 673 (7th Cir. 2012). Importantly, this inquiry must focus on the relationship between the defendant and the forum state; the Supreme Court has "consistently rejected attempts to satisfy the defendant-focused 'minimum contacts' inquiry by demonstrating contacts between a plaintiff (or third parties) and the forum state." Walden, 571 U.S. at 284 (citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 471 (1984)).
Where, as here, the plaintiffs' claim intentional torts, the purposeful availment inquiry focuses on whether the conduct underlying the claims was purposefully directed at the forum state. Tamburo v. Dworkin, 601 F.3d 693, 702 (7th Cir. 2010). In such cases, courts look to the Calder test: whether there has been "(1) intentional conduct (or 'intentional and allegedly tortious' conduct); (2) expressly aimed at the forum state; (3) with the defendant's knowledge that the effects would be felt—that is, the plaintiff would be injured—in the forum state." Id. at 703 (citing Calder v. Jones, 465 U.S. 783, 789-90, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984)).
The first and third prongs are easily met. Plaintiffs allege that Wentwood engaged in intentional torts of fraudulent concealment and tortious interference with a partnership, satisfying the first prong of Calder. (Dkt. 1, 18-19). As for the third prong, the General Partners are residents of Illinois. They manage Illinois Limited Partnerships and oversee properties located in Illinois. Wentwood clearly knew that any alleged tortious conduct would harm Plaintiffs in Illinois.
The second prong—whether Wentwood's actions were expressly aimed at Illinois—warrants longer discussion. Wentwood first contests whether it engaged in any affirmative action at all. Wentwood notes that the General Partners' "principal claim is that [Wentwood] failed to give notice...that SCDC did not receive the [General Partners'] option-exercise notices." (Dkt. 65, 6-8). One cannot expressly aim inaction at a state, according to Wentwood. (Id.). Wentwood's second argument is that any action or tortious influence exerted by Wentwood on the Limited Partners occurred in Texas, not Illinois. (Id. at 8). As explained below, these arguments are unavailing.
Contrary to Wentwood's assertions, Wentwood has directed substantial activity at Illinois. As a threshold matter, it is clear that the alleged torts were directed at the General Partners. The allegations of tortious interference and fraudulent concealment were directly aimed at the Plaintiffs; no other party would have been harmed by Wentwood's tortious conduct. But there are other activities for the Court to consider. First, Wentwood has directed communications, including phone calls and emails, at the General Partners in Illinois. Directing communications to the forum state can form the basis for personal jurisdiction. See Leong v. SAP America, Inc., 901 F.Supp.2d 1058 (N.D. Ill. 2012). "The Seventh Circuit has explained... that emails may be properly considered in minimum contact analyses, especially if they were purposefully sent to a forum resident knowing that they would be read in the forum." Levin v. Posen Foundation, 62 F.Supp.3d 733, 740 (N.D. Ill. 2014) (citing Felland v. Clif...
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