To survive a motion to dismiss under Fed. R. Civ. P. 12(b) (2), the plaintiff bears the burden
of establishing a prima facie casc of personal jurisdiction." Tumock v. Cope, 816 F.2d 332, 333 (7th
Cir.1987), In ruling on a 12(b)(2) motion, the court must accept as true the jurisdictional
allegations in the complaint, unless defendants submit contravening affidavits. Id. Any conflicts
among the parties’ affidavits must be resolved in favor of the plaintiff. Id.

Ill. Analysis
A. Defendants’ 12 (b) (6) Motions

The resolution of the Defendants’ 12 (b) (6) motions turns upon whether there is some sct of
facts that would allow Chilmark to establish that a contract was formed between it and the moving
Defendants. The moving Defendants point out that the contract does not specifically name them
and that none of them signed the contract and thus never agreed to be bound by its terms.
Accordingly, the moving Defendants argue that Chilmark’s complaint against them should be
dismissed because the complaint fails to allege that they are partics to the contract. The mere fact
that the moving Defendant's never signed the contract, however, does not mean that they never
agreed to be bound by its terms. Under Illinois law,! contract formation requires only the existence
of an offer, an acceptance, and consideration. Hubble v. O'Connor, 291 IIL. App. 3d 974, 979 (1997);
Martin v, Government Emplayees Ins. Co., 206 Ill. App. 3d 1031, 1035 (1990). The offeror has
complete control over an offer and can prescribe that the offeree must sign the contract to accept
it; but contract formation does not require a signature unless the offer explicitly governs the mode

of acceptance. La Salle Nat. Bank v, Vega, 167 Ill. App. 3d 154, 161-62 (1988) (offer mandated that

‘ The contract contains a choice-of-law clause identifying Illinois law as the law
governing the contract. None of the parties dispute that Illinois law applies, and so the Court
applies Illinois law.



With regard to TRI, Chilmark never alleges that TRI accepted any benefits of the contract.
Instead, Chilmark argues that the parties understood that Michacl Solomon had the authority to
bind MTS'’s “subsidiaries and affiliates.” In other words, Chilmark argues that Solomon, acting as
the president of MTS, had apparent authority to bind MTS's parent corporation, TRI (as well as the
trust and individual Defendants, but as noted earlier, they cannot be parties to the contract because
they are not affiliates). Chilmark again relics upon affidavits of its partners in support of its claims.
But the only fact that Chilmark alleges to demonstrate that Solomon had the authority to bind the
owners of MTS is that Matthew Rosenberg, one of Chilmark’s partners who negotiated with MTS,
“understood that . . Solomon had the authority to bind MTS, its other owners, and the various
companics that MTS owned.” However, only the words or conduct of the alleged principal, not the
alleged agent, can establish the authority of an agent. C.A.M. Affiliates, Inc. v, First American Tide
Ins. Co., 306 Tl. App. 3d 1015, 1021 (1999). Rosenberg’s “understanding” is insufficient to
demonstrate that Solomon had the authority to bind TRI. Chilmark simply points to nothing to
suggest that TRI gave Solomon, acting at the time as President of MTS, the authority to bind it.
Accordingly, TRI’s motion to dismiss is also GRANTED.

B. Personal Jurisdiction

The Court need not address whether it has personal jurisdiction over TRI, the individual
Defendants, and the trust Defendants because it finds that Chilmark failed to state a claim against
those Defendants. As noted earlier, Chilmark bears the burden of demonstrating a prima facie case
that personal jurisdiction exists, but that any conflicts in the parties’ affidavits must be resolved in
its favor. RAR, Inc. y. Turner Diesel Led., 107 F.3d 1272, 1276 (7th Cir. 1997); Turnock, 816 F.2d

at 333. Parties whose cause of action is grounded in a contract containing a forum selection clause



because the alleged subsidiary or affiliate accepted the benefits of the contract knowing that
Chilmark intended payment or because Solomon had the authority to bind the alleged subsidiary or
affiliate.

Turning to the first inquiry, the Court observes that the contract neither specifically names
MTS’s subsidiaries and affiliates, nor does it define those terms. The Court must therefore construe
the contract to determine whether the parties use of “affiliate” and “subsidiary” brings the moving
Defendants within the contract's purview. [linois subscribes to the “four corners” theory of contract
interpretation. Bourke v. Dun & Bradstreet Corp., 159 F.3d 1032, 1036 (7th Cir. 1998). Under this
approach, the court performs a threshold analysis to determine if the language within the four
comers of the contract is reasonably susceptible to a single, definite meaning, or whether it is
ambiguous. Id. at 1036-37, If the contract language is clear, the court should give it legal effect and
enfotce it. P.A. Bergner & Co, v. Lloyds Jewelers Inc., 112 IlL2d 196, 203 (Ill. 1986). The mere fact
that the contract fails to define a term or phrase does not automatically render that language
ambiguous. Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 166 IlL.2d 520, 529 (Ill. 1995).
Instead, in determining whether contract language is clear or not, the court looks to the plain and
obvious meaning of the language. Johnstowne Cer. P’ship v. Chin, 99 Ill.2d 284, 287-88 (Ill. 1983);
Rush Beverage Co. v. South Beach Beverage Co., No. 01 C 5684, 2002 WL 31749188, at “8 (N.D. Ill.
Dec. 6, 2002) (consulting dictionary to determine the plain and obvious meaning of contractual
language). In this case, the meaning of “subsidiary” and “affiliate” are not ambiguous. A subsidiary

corporation is “a corporation in which a parent corporation has a controlling share.” BLACK’S LAW

DICTIONARY 345 (7" ed. 1999), An affiliate is “a corporation that is related to another corporation



offer could only be accepted by signing agreement), It is well established that an offer may be
accepted, even when offeree is silent, if the offeree accepts the benefit of an offer with the knowledge
that the offeror expects compensation. Boomer v. A T & T Corp., 309 F.3d 404, 414-15 (7th Cir.
2002). In addition, an agent acting with apparent or express authority may enter into a contract on
behalf of the principal. See, e.g., Weil, Freiburg, & Thomas, P.C. v. Sara Lee Corp., 218 Ill. App. 3d
383 (1991); see also Opp v. Wheaton Van Lines, Inc., 231 F.3d 1060, 1064 (7th Cir. 2002).
Accordingly, the Court rejects the moving Defendants’ arguments that they are not parties to the
contract merely because they did not sign the agreement.

But Chilmark is not yet out of the woods. In order to state a claim for breach of contract,
Chilmark must at a minimum set out sufficient factual matter to outline the elements of its cause of
action—that the Defendants were parties to the contract and that the contract was breached. As
noted earlier, the elements of contract formation include an offer, acceptance, and consideration.
In its complaint, Chilmark argues that the moving Defendants are partics to the contract because
the contract explicitly included “any subsidiaries and affiliates,” and each of the moving Defendants
is a subsidiary of affiliate. But it does not follow that merely because language of the contract
includes subsidiaries and affiliates that: (1) cach of the moving Defendants is in fact cither a
subsidiary or an affiliate; or (2) that even if any moving Defendant is a subsidiary or affiliate that the
language of the contract in and of itself is sufficient to establish that a valid contract was formed.
Chilmark’s conclusory allegations need not be taken as true and it cannot rely upon unsupported
conclusions of fact to defeat the motions to dismiss. Northern Trust Co., 69 F.3d at 129, Thus, the

Court must examine whether there is some set of facts under which: (1) Chilmark could establish

that each of the moving Defendants is a subsidiary or affiliate; and (2) a contract was formed either



establish that TRKK or TRI accepted Chilmark’s offer to perform financial services for MTS and its
subsidiaries and affiliates.

In this case, the Complaint alleges that Chilmark performed services for TRKK and that
TRKK accepted the benefits of those services. Specifically, the complaint alleges that Chilmark
arranged to broker a transaction resulting in the sale of TRKK and negotiated a credit agreement for
TRKK. Affidavits attached to Chilmark's response to the motions to dismiss further detail the work
it performed on behalf of TRKK.? According to Chilmark, it consulted with TRKK executives and
legal counsel in order to determine the best course of action in its efforts to restructure TRKK’s debt.
In this regard, TRKK is more than a third party beneficiary. TRKK did not simply indirectly benefit
from work Chilmark performed on behalf of MTS; instead, TRKK benefitted directly from work
Chilmark performed. Given the language in the contract including MTS's subsidiaries as parties to
the contract and TRKK’s apparent acceptance of the benefits of that contract, the Court can
imagine some set of facts that would allow Chilmark to establish that TRKK agreed to be bound by
the contract even though it was not a signatory to the agreement. Of course, at this stage of the
litigation, the Court accepts all of Chilmark’s allegations as true, and after the completion of
discovery, Chilmark bears the burden of establishing that a valid contract was formed between it and

TRKK.

> Contrary to Defendants’ argument that Chilmark’s reliance on the affidavits is
improper, it is well settled that a plaintiff may assert additional facts, cither in its brief or in
affidavits, in response to a 12(b)(6) motion, so long as those additional facts are consistent with
its complaint. See Albiero v. City of Kankakee, 122 F.3d 417, 419 (7th Cir.1997); Highsmith v.
Chrysler Credit Corp., 18 F.3d 434, 439 (7th Cir.1994); Hrubec v. National 8.R. Passenger
Corp., 981 F.2d 962, 963-64 (7th Cir.1992).



Minuge Onder Form (6/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge ‘li i Sitting Judge if Other
. or Magistrate Judge William J. Hibbler than Assigned Judge
CASE NUMBER 02 C 5339 DATE 04/23/2003
CASE Chilmark v. MTS, Inc. et al
TITLE
[in the following box (a) indicate the party filing the motion, e.g,, plaintiff, defendant, 3rd parry plaintiff, and (b) state briefly the
MOTION: nature of the motion being presented. ]
Defendants TRI’s et. al, Motion to Dismiss (doc. #19)
Defendant TRKK’s Motion to Dismiss (doc. #25)
DOCKET ENTRY:
() Oo Filed motion of [ use listing in “Motion” box above.)
(2) a Brief in support of motion due
¢ f pp f motion d
(3) Qo Answer brief to motion due . Reply to answer brief due
(4) a Ruling/Hearing on set for at
(5) o Status hearing [held/continued to] [set for/re-set for] on set for at
(6) a Pretrial conference [held/continued to] [set for/re-set for] on set for at
(7) a Trial (set for/re-set for] on at
(8) a [Bench/Jury trial] [Hearing] held/continued to at
9) a This case is dismissed [with/without] prejudice and without costs [by/agreement/pursuant to]

OFRCP4(m) OGeneral Rule21 OFRCP41()(1) CO FRCP41(a)(2).

(10) @ [Other docket entry] . Enter memorandum opinion and order. For the attached reasons, TRI'’s motion to dismiss
(doc. #19) is GRANTED with prejudice, terminating Tower Records, Inc., The Russell Solomon Trust, The Michael ‘I’.
Solomon 1994 Trust, The David Solomon 1994 'l'rust, The Andrew Solomon Trust, the Aaron O, Solomon 'I'rust, Russell
Solomon, and Michael ‘IT, Solomon. Defendant Tower Records Kabushiki Kaisha’s motion to dismiss (doc, #25) is
DENIED.

(41) a [For further detail see order on the reverse side of the original minute order.}

No notives required, advised in open court,

No notices required. umber of notices

APR 25 208

dare dockered

Notices mailed by judge's staff.

Notified counsel by telephone,

ov | Docketing to mail notices.

Mail AO 450form. - 4

Copy to judge/magistrate judge.

date mailed notice
courtroom

JHC deputy’s

initials

Date/time received in
central Clerk's Office ‘mailing deputy initials



will be deemed to have waived any objection to personal jurisdiction. M/S Bremen v. Zapata Off-
Shore Co., 407 U.S. 1, 9-12 (1972); United Airlines Inc. v. ALG, Inc., 873 F. Supp. 147, 151 (N.D.
Ill. 1995), Forum selection clauses ave presumptively valid unless the opposing party demonstrates
that enforcement would be unreasonable. M/S Bremen, 407 U.S. at LO. Here, the Plaintiff alleges
that because TRKK is a subsidiary to MTS, it is a party to che contract, which includes MTS’s
subsidiaries and which contains a forum selection clause consenting to the jurisdiction of Ilinois
courts. I'RKK makes no effort to demonstrate that enforcement of the forum selection clause is
unreasonable, instead arguing that it is not a party to the contract. But as noted earlier, Chilmark
has put forth some set of facts that could demonstrate that TRKK is a party to the contract, and thus
bound by the forum selection clause and consenting to the exercise of personal jurisdiction over it.
Because the Court resolves factual disputes in favor of Chilmark in resolving a 12(b)(2) motion,
TRKK's motion is DENIED.
CONCLUSION

TRKK’s Rule 12(b) (6) and Rule 12(b)(2) motions to dismiss are DENIED. The 12(b)(6) motion
to dismiss by TRI, the Russell Solomon Trust, the Michael T. Solomon 1994 Trust, the David
Solomon 1994 Trust, the Andrew Solomon Trust, the Aaron ©. Solomon Trust, Russell Solomon
and Michael T, Solomon is hereby GRANTED and Chilmark’s complaint as to these Defendants is
dismissed with prejudice.

IT IS SO ORDERED

Y/23 fo lif lle)

Date The HonorabléWilliam J. Hibbler
United States District Court



by shareholdings or other means of control; a subsidiary, parent or sibling corporation.” BLACK’s
LAW DICTIONARY 59 (7" ed. 1999) (emphasis added).

Chilmark alleges in the Amended Complaint that the trust and individual Defendants are
“affiliates as a result of their beneficial and actual ownership interests in TRI, the sole shareholder
of MTS.” As noted above, however, affiliates are corporations that are related to other corporations.
The crust and individual Defendants are not corporations, They are sharcholders. Chilmark's
attempt to dress the trust and individual Defendants in the ill-fitting clothes of corporate affiliates
is unconvincing. In essence, Chilmark asks the Court to disregard the corporate form and picrce the
corporate veil without alleging a single fact chat would justify such a measure. Under Chilmark’s
proposed definition of affiliate, any shareholder could become an affiliate of the corporation in which
he owned shares and thus become liable for the debts and obligations of the corporation based solely
on the sharcholder’s ownership interests, Such a definition obliterates the civil liability advantages
of the corporate form and is patently unreasonable. Under the plain meaning of the language of the
contract, the trust and individual Defendants, simply are not “affiliates” of MTS, and thus cannot
be considered to be partics to the contract, and the motion as to all individual Defendants and trust
Defendants is GRANTED.

On the other hand, TRKK admits that it is a subsidiary of MTS. In addition, Chilmark
alleges that TRI is “the owner of all authorized, issued Class B common Shares of MTS
Incorporated,” making it the parent corporation of MTS—consistent with the plain and ordinary
meaning of affiliate: “a corporation that is related to another corporation by shareholdings or other
means of control.” Because TRKK and TRI are each either a subsidiary or an affiliate of MTS, the

Court turns to the second inquiry: whether some set of facts exists that would allow Chilmark to



individual Defendants are “affiliates of MTS as a result of their beneficial and actual ownership
interests in TRI, the sole shareholder of MTS.” Pursuant to a forum selection clause in the
agreement, Chilmark sued the Defendants in this district. In response, the alleged “subsidiaries and
affiliates” move to dismiss all counts against them on the grounds that they are not parties to the
contract and Chilmark has not stated a claim against them. Fed. R. Civ. P. 12(b)(6). The moving
Defendants also argue that they are not subject to personal jurisdiction in the Northern District of
Mlinois.
Il. STANDARD OF REVIEW

Motions to dismiss under Rule 12(b) (6) test the sufficiency of the complaint rather than the
merits of the case. Midwest Gas Serv. v. Indiana Gas Co., 317 F.3d 703, 714 (7th Cir. 2003), In
reviewing a motion to dismiss, a court construes all allegations in the complaint in the light most
favorable to the plaintiff, taking all well-pleaded facts and allegations within the complaint as true.
Albany Bank & Trust Co, v. Exxon Mobil Corp., 310 F.3d 969, 971 (7th Cir. 2002). The moving party
bears the burden of showing “beyond doubt that the plaintiff can prove no set of facts in support of
his claim” that would entitle him to relief, Conley v. Gibson, 355 U.S, 41, 45 (1957). Although
federal courts require notice, not fact, pleading, a plaintiff cannot withstand a motion to dismiss,
however, by relying upon conclusory statements of law or unsupported conclusions of fact. First Ins.
Funding Corp. v. Federal Ins. Co., 284 F.3d 799, 804 (7th Cir. 2002); Northern Trust Co. v. Peters, 69
F,3d 123, 129 (7th Cir. 1998). In other words, a plaintiff “must set out sufficient factual matter to
outline the elements of his cause of action or claim, proof of which is essential to his recovery.”
Menard Inc. v. U.S. Equities Dev., Inc., No. 01 C7142, 2002 WL 31050160, at *1 (N.D. Ill. Sept. 13,

2002).



MTS (collectively, moving defendants) move to dismiss the complaint against them pursuant to Fed.

R. Civ. P. 12(b) (6) and 12(b)(2). For the following reasons, the Courr DENIES TRKK’s motions

and GRANTS the 12(b) (6) motions of TRI, the trust Defendants, and the individual Defendants.
I. FACTS

MTS entered into an agreement with Chilmark, an IIlingis-based investment company, in
which Chilmark agreed to help MTS restructure its debts and assets. MTS's President, Michacl
Solomon, and Chilmark’s managing member, David Schulte, signed a May 18, 2001 letter outlining
the terms of the parties’ agreement. The letter confirmed the parties’ understanding that the
agreement was between Chilmark and MTS, “together with any subsidiaries and affiliates.” The
agreement, however, did not specifically name the “subsidiarics and affiliates” or define in any way
the parties’ understanding of the terms “subsidiaries and affiliates.” In its First Amended Complaint
(hereafter, Complaint), Chilmark alleges that the Defendants breached the agreement when they
failed to pay Plaintiff $2.5 million for successfully restructuring the company’s debt, as well as a
$121,464 in unpaid expenses and retainer fees.

Chilmark alleges that TRKK, TRI, the trust Defendants, and the individual Defendants were
parties to the contract based on their status as subsidiaries or affiliates of MTS. Chilmark further
alleges that TRKK is a subsidiary of MTS and that pursuant to the parties’ agreement Chilmark
performed services for TRKK and consulted with TREK executives. For example, Chilmark alleges
that it recommended and brokered the sale of TRKK. Chilmark further alleges that “MTS and its
subsidiary, TRKK” entered into a credit agreement with a group of banks, and, later, together
renegotiated the credit agreement. Chilmark next alleges that TRI is “the owner of all authorized,

issued Class B Common Shares of MTS.” Finally, Chilmark alleges that the trust Defendants and



IN THE UNITED STATES DISTRICT COURT B OCKE TED
FOR THE NORTHERN DISTRICT OF ILLINOIS NPR 9&5
EASTERN DIVISION a anAL ER)

CHILMARK PARTNERS, LLC,
Plaintiff,

Case No. 02 C 5339

MTS, INC., TOWER RECORDS KABUSHIKI Judge William J. Hibbler
KAISHA, TOWER RECORDS, INC., THE RUSSELL
SOLOMON TRUST, THE MICHAEL T, SOLOMON
1994 TRUST, THE DAVID SOLOMON 1994 TRUST,
THE ANDREW SOLOMON Trust, THE AARON O.
SOLOMON TRUST, RUSSELL SOLOMON, AND

MICHAEL T. SOLOMON,

Defendants.

MEMORANDUM OPINION AND ORDER

Investment banking firm Chilmark Partners alleges that MTS, Inc., and several alleged
subsidiaries and affiliates, violated the terms of a May 18, 2001, contract under which Plaintiff
provided financial advice on debt restructuring and assct sales in exchange for certain fees. On June
12, 2002, Michacl T. Solomon, President and CEO of MTS, terminated Chilmark’s services,
contending that Chilmark had materially breached the agreement, Chilmark requested that MTS
and its subsidiary Tower Records Kabushiki Kaisha (TRKK) pay over $2.6 million for services it
already performed, but MTS refused to pay. Chilmark then sued MTS, contending it was owed fees
and expenses for its services. Chilmark also named TRKK, Tower Records, Inc. (TRI), various trusts

(teust Defendants), and Russell and Michael Solomon (individual Defendants), alleging that they

were parties to the contract because they were subsidiaries or affiliates of MTS. All Defendants but