Defendants initiated contact with BAB Systems at its Chicago offices and they expressed
interest in a Big Apple Bagels franchise. Soon after, Defendants Robert, Peter, and Sarah
Stonskas visited Chicago and met with various BAB Systems personnel to discuss the Big Apple
Bagels franchise offering. That meeting took place at BAB Systems office in Chicago. After the
meeting in Chicago, Defendants again contacted BAB Systems at its offices in Chicago and
indicated that they wanted to proceed with the acquisition of a Big Apple Bagels franchise. BAB
Systems transmitted a franchise agreement to the Stonskases for signature, they signed it and
retumed it to BAB Systems in Chicago for signature. The agreement did not become effective

until executed in Illinois by BAB Systems.

The principal benefit to BAB Systems under the franchise agreements was the right to
receive royalty income from Defendants. Section 8 of the franchise agreements contemplated
weekly payments of fees to BAB Systems in Illinois. Defendants also were required to submit
weekly gross revenue reports and quarterly and annual financial statements. Finally, pursuant to
the franchise agreements, Defendants attended training sessions in Chicago on at least two
separate occasions. This Court finds that the requirements for asserting jurisdiction in Illinois
clearly are satisfied under (a)(7) of the long-arm statute, and it is therefore able to assert personal
jurisdiction over Defendants for Plaintiffs’ claims arising from the franchise agreements
according to Illinois law.? See also Continental Bank N.A. v. Everett, 964 F.2d 701, 703 (7th

Cir. 1992) (upholding personal jurisdiction over defendant under 2-209(a)(7) where “the

? Because Illinois courts have held that the long-arm statute is narrower in scope than the
constitutional due process test, by satisfying the requirements of the Illinois long-arm statute,
Plaintiffs necessarily satisfy the “minimum contacts” test set forth in International Shoe and its
progeny. See Rose v. Franchetti, 979 F.2d 81, 85 (7th Cir. 1992); Cont’| Bank N.A. v. Everett,
742 F.Supp. 508, 512 (N.D. Il] 1990) (citing Arthur Young & Co. v. Bremer, 197 IIl.App.3d 30,
35 (1990); Green v. Advance Ross Elecs. Corp., 86 IIl.2d 431, 436-37 (1981)).



Illinois state court has jurisdiction over the case if the Illinois long-arm statute, 735 Ill. Comp.
Stat. 5/2-209 (2002), grants jurisdiction, jurisdiction is consistent with the Illinois constitution,
and if jurisdiction over the defendants complies with the due process requirements of the federal
constitution. Plaintiffs contend this Court has personal jurisdiction over defendants under section
5/209(a)(7): “The making or performance of any contract or promise substantially connected
with this State.”

Plaintiffs argue that the franchise agreements that Defendants entered into with Plaintiffs
are substantially connected with Illinois. Namely, Plaintiffs are Illinois corporations with
principal places of business in Chicago, Illinois; the franchise agreements were not effective until
executed in I!linois; the franchise agreements contain an arbitration clause naming Chicago,
Illinois as the forum; the defendants are required to make royalty payments to Illinois; and the
parties agreed to an Illinois choice of law and an Illinois forum selection clause.

There are three common factors courts examine to determine whether or not a defendant
transacted business in Illinois for the purposes of personal jurisdiction. These factors are: (1)
who initiated the transaction; (2) where the contract was entered into; (3) where the performance
of the contract was to take place. Viktron Ltd. Partnership v. Program Data, Inc., 326 Ill. App.3d
111, 117-18 (2d Dist. 2001). Further, a “fourth factor, where the contract was negotiated . . . is
clearly relevant.” Id. In this case, it is obvious that at the time of the alleged contract, the parties
would have contemplated that the contract to be performed would be connected substantially to

Illinois.

' That the forum selection and/or choice of law provision ultimately may be
unenforceable, sce infra note 3, has no bearing on whether the Defendants purposefully availed
themselves to the forum state for specific personal jurisdiction purposes.



documents recite that they were delivered and executed in Illinois, the loan was to be repaid in

Illinois, and the guarantors agreed that Illinois law would govern).

Motion to Transfer

In the alternative, pursuant to §1404(a), Defendants move to transfer this case to an lowa
federal district court. Section 1404(a) states: “For the convenience of the parties and witnesses,
in the interest of justice, a district court may transfer any civil action to any other district or
division where it might have been brought.” As there are several considerations involved in this
determination, including the enforceability of the forum selection clause and the applicable
choice of law,’ it is premature at this point to determine the convenience of the parties and/or
witnesses. Even if the forum selection clause is invalid, that simply means that the appropriate
forum is determined by applicable law, including forum non conveniens. This Court therefore
DENIES Defendants’ § 1404(a) motion with leave to refile if the circumstances so permit and

after the parties have briefed the issue more thoroughly.

3 The Court notes that, while Defendants argue that the forum selection clause is void,
neither party discussed in their briefs whether federal law or state law (and which state law)
governs the enforceability and/or validity of this forum selection clause. Further, although the
franchise agreements state Illinois law governs, the Defendants rely on the lowa Franchise Act,
and it is unclear whether Illinois or Iowa state law applies in this case. See Wright-Moore Corp.
v. Ricoh Corp., 908 F.2d 128 (7th Cir. 1990) (upholding application of Indiana franchise law
notwithstanding a New York choice of law provision).



Minute Order Fern (06197)

. United States District Court, Northern District of Illinois
Name of Assigned Judge David H. Coar Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 02 C 8797 DATE December 18, 2002
CASE BAB Systems, Inc. and BAB, Inc. v. UNK, Inc., et al.
TITLE

[Im the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

of the motion being presented.]

MOTION:
Defendant’s Motion to Dismiss or to Transfer Case
DOCKET ENTRY:
q) ia Filed motion of { use listing in “Motion” box above.]
(2) 0 Brief in support of motion due
(3) oO Answer brief to motion due___. Reply to answer brief due.
(4) Oo Ruling/Hearingon___setfor___at.
(5) Oo Status hearing[held/continued to} [set for/re-set for]on___——ssetfor_ at.
(6) oO Pretrial conference[held/continued to] [set for/re-set for]on___—ssetfor_——aat_.
(7) oO Trial[set for/re-set for]on__ at
(8) Oo {Bench/Jury trial] [Hearing] held/continued to ___at
(9) im This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}

OFRCP4(m) O General Rule 21 OO FRCP41(a)(1) 0) FRCP41(a)(2).

(10) i [Other docket entry] For the reasons stated on the reverse side of this Minute Order, this Court
DENIES defendants’ motion to dismiss [8-1] and DENIES their motion to transfer [8-2] to the

Northern District of lowa, with leave to refile if the circumst: ermit.

bl

di) ff [For further detail see memorandum and opinion order attached to original minute order.]

X_ | No notices required, advised in open court.

No notices required. umber of cotices

Document

Number

Notices mailed by judge’s staff.

f anys
Notified counsel by telephone. DEC 2 G bye

date docketed

Docketing to mail notices. Coe
Mail AO 450 form. Lyuned fap

docketing deputy initials

Copy to judge/magistrate judge.

courtroom 61 33u 0
mds(Ic) deputy’s
initials

Ot phatibedhel in

central Clerk's Office mailing deputy invials



Conclusion
For the foregoing reasons, this Court DENIES defendants’ motion to dismiss for lack of
personal jurisdiction [8-1], and DENIES their motion to transfer [8-2] to a federal district court

in Iowa, with leave to refile if the circumstances so permit.

Enter:

David H. Coar
United States District Judge

Dated: December 18, 2002



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINO|

EASTERN DIVISION :
BAB SYSTEMS, INC. and BAB, INC. y
)
Plaintiffs, )
) No. 02 C 8797

v. )

) HONORABLE DAVID H. COAR
UNK, INC, et al., )
)
)
Defendants. )

MEMORANDUM OPINION AND ORDER

BAB Systems, Inc. and BAB, Inc. (“Plaintiffs”) sue UNK, Inc., and Robert, Peter, and
Sarah Stonskas (“Defendants”) for breach of contract and trademark infringement under federal
and state law. Defendants move to dismiss Plaintiffs’ complaint against it pursuant to
Fed.R.Civ.P. 12(b)(2), for lack of personal jurisdiction. In the alternative, pursuant to 28 U.S.C.
§ 1404(a), Defendants move to transfer this case to a United States District Court sitting in Iowa.
For the following reasons, this Court DENIES Defendants’ motion to dismiss and DENIES their
motion to transfer.

Background

Plaintiffs are Illinois corporations with their principal places of business in Chicago,
Illinois. Defendant UNK, Inc. is an Iowa corporation with its principal place of business in
Waterloo, Iowa. Defendants Robert, Peter, and Sarah Stonskas are individuals residing in lowa.
BAB Systems operates a franchise distribution system pursuant to which franchisees are licensed
to operate retail stores specializing in the sale of bagels, cream cheeses, muffins, coffee, and

related food items under various trademarks and service marks including, but not limited to, “Big

ie



Apple Bagels,” ““Brewster’s,” and “My Favorite Muffin.” BAB, Inc. is a holding company that is
the sole shareholder of BAB Systems, Inc. BAB, Inc. owns the various trademarks and service
marks that it has licensed to BAB Systems for use in connection with BAB Systems’ franchising
business. On February 21, 1997, BAB Systems entered into a franchise agreement with UNK, an
Iowa corporation whose sole shareholders were Robert, Peter, and Sarah Stonskas. On May 11,
1998, BAB Systems entered into two other franchise agreements with UNK, and Sarah and
Robert Stonskas. Each of the contracts contained a “Governing Law/Consent to Jurisdiction”
clause in which the parties consented to be governed by Illinois law and to jurisdiction in any
state or federal court of general jurisdiction in the State of Illinois.
Discussion
The plaintiff bears the burden of establishing facts showing personal jurisdiction over the

defendants. Stee] Warehouse of Wisc., Inc. v. Leach, 154 F.3d 712, 714 (7th Cir. 1998), In this

case, Plaintiffs claim two independent bases for jurisdiction: 1) the forum selection clauses in the
franchise agreements; and 2) the Illinois Long-Arm Statute. Defendants argue that the forum
selection clause is void under section 523H.3 of the lowa Franchise Act, which states “A
provision in a franchise agreement restricting jurisdiction to a forum outside this state is void
with respect to a claim otherwise enforceable under this chapter.” The Court need not address
this issue, however, because it has jurisdiction over defendants under the Illinois Long-Arm
Statute.
Personal Jurisdiction Under the Illinois Long-Arm Statute

In a diversity action, a federal court will have personal jurisdiction over a defendant only
if an Illinois state court would have jurisdiction. Hyatt Intern. Corp. v. Coco, 302 F.3d 707, 713

(7th Cir. 2002); RAR, Ine. v. Tumer Diesel, Ltd., 107 F.3d 1272, 1275 (7th Cir.1997). An