had to authorize or initiate the wire transfers for the loans at issue in the case. These wire
transfers from the plaintiff to California were not enough to establish minimum contacts. See
Asset Alloc. & Mgmt. Co. v. Western Empl. Ins. Co., 892 F.2d 566, 569-70 (7" Cir. 1989)
(payment of checks insufficient for minimum contacts); Tri-Meats, Inc. v. NASL Corp., 2001 WL
292621, at *7 (N.D. Ill. Mar. 26, 2001) (wire transfer to Illinois “not enough” to satisfy
jurisdiction); FCNBD Mortgage Invs., Inc., v. CRL, Inc., No. 00 C 405, 2000 WL 1100332, at
*4 (N_D. Ill. Aug. 4, 2000) (wire transfer to Chicago insufficient to establish personal
jurisdiction).

Even when looking as these contacts as a whole, plaintiff has not established sufficient
minimum contacts to assert personal jurisdiction over Bayshores or its employees Kim and
Kuhlmann. These contacts are fortuitous and do not demonstrate that the Removing Defendants
“purposefully established minimum contacts within” Illinois.” Burger King, 471 U.S. at 476.

B. Defendant Yi

Defendant also asserts personal jurisdiction over Shelly Yi based on a $57,000 wire
transfer rom the Lanzafame transaction that she received from a United Financial account in
Illinois. Yi contends in her affidavit that she mistakenly received the money and that she
returned it to the seller of the property.

It is uncontested that Yi was not a party to the Wholesale Agreement, did not have a
separate contract with United Financial, never traveled to Illinois in connection with the
transactions at issue and never had any conversations with anyone at United Financial. Taking
the allegations in the light most favorable to United Financial, the mere receipt of a wire transfer

from an Illinois account is not sufficient to establish personal jurisdiction over Yi. See Asset

13



Suite #206, Oak Brook, IL 60523.” (/d., Ex. A at 1.) The Wholesale Agreement also provided
that “any unresolved dispute between the parties arising out of, in connection with the terms of
this Agreement shall be adjudicated by arbitration in the City of Oak Brook, Illinois ....” (Id. f
13.) Bayshores executed the Wholesale Agreement in California and forwarded it to plaintiff's
Irvine, California office. (R. 15-1, Kuhlmann Decl. ff 4-5.) Kuhlmann, United Financial’s
president, executed the Wholesale Agreement in Oak Brook, Illinois. (R. 1-1, Compl. Ex. A at
6)
I. The Real Estate Transactions

The Complaint contains allegations of fraud involving the sale of two properties: 1) 2668
Lamar Road, Los Angeles, California (the “Lamar Road Property”); 2) 1101 South Plymouth
Boulevard, Los Angeles, California (the Plymouth Boulevard Property). Both of these
properties are located in California, and all of the Defendants were located in California.

A. The Lamar Road Property

Plaintiff contends that in April and May of 2001 Defendants Kaddis, Yi, Kim, Kuhlmann
and Bayshores conspired to enter a fraudulent transaction with defendant Lanzafame for the
purchase of the Lamar Road Property. (R. 1-1, Compl. {J 17-30, 49-55.) Yi allegedly sent
Lanzafame to Bayshores, Kim and/or Kuhlmann to assist in the preparation of the false loan
documentation, and Yi allegedly profited from the sale of the Lamar Road Property. (Id. {{ 8,
19.) Plaintiff alleges that Bayshores, Kaddis, Lanzafame, Yi, Kim and Kuhimann prepared false
loan documents in connection with the sale of the Lamar Road Property. (/d. 421.) Those false
documents, according to United Financial, caused them to issue two loans to Lanzafame for the

purchase of the property. (/d. | 25.) These loans totaled $980,000. (/d. 27.)



interest of justice, transfer such case to any district or division in which it could have been
brought.” 28 U.S.C. § 1406(a). It is undisputed that venue would be proper in the transferee
district. The alleged wrongdoing occurred in that forum and the property and defendants are
located there. Further, it is clear from the pleadings that the Central District of Califomia will
have jurisdiction over all of the parties.

Transfer to the Central District of California under § 1406 is also in the interest of justice.
It is presumed that a transfer is in the interest of justice. Spherion Corp. v, Cincinnati Fin. Corp.,
183 F.Supp.2d 1052, 1059-60 (N.D. Ill. 2002). Here, there is no reason to hold otherwise. There
is no allegation by the Removing Defendants that Plaintiff was merely forum shopping and
attempting to win the race to the courthouse by filing in an improper forum. It appears that
United Financial filed the lawsuit in the Northern District of Illinois in good faith. No purpose
would be served by requiring United Financial to start suit anew or even to simply refile its
complaint in the Central District of California.

CONCLUSION

This Court does not have personal jurisdiction over the Removing Defendants. Instead of
dismissing the action, the Court will transfer the action to the Central District of California
pursuant to 28 U.S.C. § 1406. The motions by the Removing Defendants and Kaddis to dismiss
for lack of personal jurisdiction or in the alternative to transfer pursuant to § 1404) are
therefore denied as moot.

Date: October 17, 2002

17


‘substantial connection’ with the forum state.” Burger King v. Rudzewicz, 471 U.S. 462, 475, 105
S.Ct. 2174, 85 L.Ed.2d 528 (1985) (citations omitted). The defendant's connection to the State
must be substantial enough that “he should reasonably anticipate being haled into court there.”
World-Wide Volkswagen, 444 U.S. at 297. Furthermore, contacts with Illinois that are “random,”
“fortuitous” or “attenuated” will not satisfy the due process mandates. Burger King, 471 U.S. at
475; Heritage House Rests. v. Continental Funding Group, 906 F.2d 276, 283 (7" Cir. 1990).

I. The Defendants’ Contacts With Illinois

A, Bayshores and Its Employees, Kuhlmann and Kim

Plaintiff claims that the Removing Defendants had sufficient contacts with Ilinois to
satisfy the due process requirements of the Constitution based on the following: the terms and
conditions of the Wholesale Agreement, including a provision which provided for arbitration
resolution in Oak Brook, Illinois; the fact that the Wholesale Agreement was signed on behalf of
United Financial in Oak Brook, Illinois; their dealings with United Financial, which has a
corporate headquarters and principle place of business in Oak Brook, Llinois; the number of
mortgages brokered by Bayshores with United Financial; the authorization of wire transfer from
Oak Brook, Illinois; and its contention that Defendants sought out United Financial for the
transactions at issue.

Plaintiff first argues that personal jurisdiction is conferred through the contract entitled
Wholesale Agreement. In contract disputes it is only the “dealings between the parties in
regard to the disputed contract’ that are relevant to minimum contact analysis.” RAR, 107 F.3d
at 1278 (quoting Vetrotex Certainteed Corp. v. Consolidated Fiber Glass Prods. Co., 75 F.3d

147, 153 (3rd. Cir.1996)) (emphasis in original). It is clear that “an out-of-state party's contract



Pl.’s Resp. in Opp’n to Mot. to Dismiss or Transfer, Ex. 1, Khoshabe Decl. ff 4-5.) The
promissory notes signed by Lanzafame provided for all monthly payments to be made to United
Financial in Oak Brook, Illinois. (/d., Ex. 3, Lanzafame Note { 3.)

United Financial sold the loans in connection with these transactions on the secondary
mortgage market to DLJ Mortgage Capital, Inc. (“DLJ”). (R. 1-1, Compl. 4 29, 42.) DLJ
subsequently demanded that United Financial repurchase these loans because they were in early
default. (Ud. 7 44.) United Financial, per its contractual obligation, repurchased all of the
defaulted loans from DLJ. (/d. 4 45.)

ANALYSIS

Defendants seek to have the case dismissed for lack of personal jurisdiction. In the
alternative, they request that the Court transfer the case to California.
IL Legal Standard

When a defendant files a motion to dismiss a case for lack of personal jurisdiction, the
plaintiff bears the burden of demonstrating the existence of personal jurisdiction over the
defendants. RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir.1997). In assessing
such a motion, the allegations in the Complaint are to be taken as true unless controverted by the
defendants’ affidavits; and any conflicts in the affidavits are to be resolved in the Plaintiff's
favor. Turnock y. Cope, 816 F.2d 332, 333 (7" Cir. 1987).

An Illinois federal court has personal jurisdiction over a non-resident party “only if an

Illinois state court could have such jurisdiction." Kump v. Duffus, 71 F.3d 1368, 1371 (7th



As the affidavits submitted by the Removing Defendants show, Bayshores, Kim, Yi and
Kuhimann did not have any direct dealings with Illinois in connection with this transaction.
They dealt instead with Plaintiff's Irvine, California office. Specifically, they submitted
paperwork to the Irvine, California Office and communicated with Plaintiff's employees in that
office. The Lamar Road Property is located in California, and the paperwork was prepared in
California. United Financial authorized and initiated the wire transfers in connection with the
loans from Oak Brook, Illinois. The promissory notes signed by Lanzafame provided for all
monthly payments to be made to United Financial in Oak Brook, Illinois.

B. The Plymouth Boulevard Property

The Complaint further alleges that in April and May 2001, Defendants Kaddis,
Bayshores, Kim and/or Kuhimann assisted Saint Andrew in preparing false loan documentation.
(R. 1-1, Compl. {¥ 31-43.) Such documentation, according to Plaintiff, was submitted to
Plaintiff in connection with the purchase of the Plymouth Boulevard Property. (/d.) Defendant
Kaddis directed Saint Andrew to Bayshores to assist in the preparation of the fraudulent
documentation. (/d, 32.) Bayshores then submitted the documentation to United Financial,
who issued two loans to Saint Andrew totaling $350,000. (Id. {J 32, 39.)

In connection with the Plymouth Boulevard Property loans issued by United Financial,
Bayshores, Kim and KuhImann prepared the paperwork in California and submitted the loan
paperwork to United Financial’s Irvine, California office. (R. 12-1, Kim Decl. {J 7-8.)
Defendants Bayshores, Kim and Kuhlmann only dealt with Plaintiff's employees in the Irvine,
California sales representative office. (R. 12-1, Kim Decl. { 8-9.) United Financial authorized

and initiated the wire transfers in connection with the loans from Oak Brook, Illinois. (R. 17-1,



jurisdiction over a non-resident defendant, due process requires that the defendant have “certain
minimum contacts with [the state] such that the maintenance of the suit does not offend
‘traditional notions of fair play and substantial justice’” RAR, 107 F.3d at 1277 (quoting
International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). The minimum contacts
standard varies depending on whether the plaintiff asserts general or specific jurisdiction.
Because this case involves specific jurisdiction‘, the Court will address that standard.

Specific jurisdiction originates in cases “arising out of or related to the defendant’s
contacts with the forum.” Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408,
416, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984). This nexus “aims to give ‘a degree of predictability
to the legal system that allows potential defendants to structure their primary conduct with some
minimum assurance as to where that conduct will and will not render them liable to suit.” Hyatt,
302 F.3d at 716 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100
S.Ct. 559, 62 L.Ed.2d 490 (1980)). In specific jurisdiction cases, a defendant’s minimum

contacts with Illinois must “result from the actions by the defendant himself that create a

* A defendant is subject to general jurisdiction in Illinois only when it is either domiciled
in Illinois, see Euromarket Designs, Inc. v. Crate & Barrel Ltd., 96 F.Supp.2d 824, 833 (N.D. Ill.
2000), or “where the defendant has ‘continuous and systematic general business contacts with the
forum.’” RAR, Inc., 107 F.3d at 1277 (quoting Helicopteros Nacionales de Colombia, S.A. v.
Hall, 466 U.S. 408, 414 n.8 (1984)) (internal quotations omitted). Although United Financial
does not specify if it is seeking general or specific jurisdiction, it makes a broad allegation that,
under the Wholesale Agreement, “over 40 loans were funded by United Financial through its
Oak Brook office over a lengthy period of time.” (R. 17-1, Pl.’s Resp. in Opp’n to Mot. to
Dismiss or Transfer at 10). Plaintiff does not develop this argument, nor does Plaintiff explain
how the origin of United Financial’s funding would allow for general jurisdiction over the
Removing Defendants. Thus, this argument is waived. Commodity Futures Trading Comm'n v.
Tokheim, 153 F.3d 474, 476 n.3 (7th Cir. 1998). In any event, given the facts surrounding these
loans, Plaintiff has not established that the Defendants had “continuous and systematic general
business contacts with the forum.”



 Minuee Order Fort (06°97)

Su United States District Court, Northern District of Illinois

weer Magnerate Jude Amy J. St. Eve “than Asigoed Judge
CASE NUMBER 02 C 5260 : DATE 10/17/2002
CASE United Financial vs, Bayshores
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
(03) im Filed motion of [ use listing in “Motion” box above.]
(2) oO Brief in support of motion due
(3) Qo Answer brief to motiondue___. Reply to answer briefdue__.
(4) a Ruling/Hearingon___—sset for Sat
(5) oO Status hearing[held/continued to] [set for/re-set for]on__set for____at
(6) o Pretrial conference[held/continued to] [set for/re-set for]on__——ssetfor_— at_
() im Trial[set for/re-set for]on__—_at.
(8) QO [Bench/Jury trial] [Hearing] held/continuedto__—_at
(9) Q This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}

COFRCP4(m) C)Local Rule 41.1 CIFRCP41(a)(1) OFRCP41(a)(2).

(io) «of [Other docket entry) Enter Memorandum Opinion and Order. This Court hereby orders this
case transferred sua sponte to the Central District of California pursuant to 28 U.S.C. §1406(a).
The motions of defendants Bayshores Funding Corporation, Russell Kuhlmann, Christian Kim,
Shelly Yi and William Kaddis to dismiss the case for lack of personal jurisdiction or to transfer
the case to California under 28 U.S.C. §1404(a) are hereby denied as moot. Status hearing set
for 11/13/02 is stricken.

(11) @ (For further detail see order attached to the original minute order.]

No notices required, advised in open court.
‘
No notices required. of notices
oY | Notices mailed by judge’s staff. OCT 1 8 2002
Notified counsel by telephone. date docketed
Docketing to mail notices.
V_ | Mail Ao 450 form. bps cosa doc initial
Copy to judge/magistrate judge.
. orr7/2902
eos 323 ‘let pt
co m Ohta i date mailed notice
THY deputy's , tm
initials
\ © Dateline received in ; ;
central Clerk's Office. mailing deputy initinis



but other federal courts have found that a clause stating the forum for arbitration does not alone
confer personal jurisdiction. See BP Chem. Ltd. v. Formosa Chem. & Fibre Corp., 229 F.3d 254,
261-62 (3 Cir. 2000) (agreement to arbitrate in forum “offers most substantial support” for
personal jurisdiction, but was “not sufficient to carry the day.”); Kahn Lucas Lancaster, Inc. v.
Lark Int'l Ltd., 956 F.Supp. 1131, 1138-39 (S.D.N.Y. 1997) (arbitration clause alone did not give
court jurisdiction); of CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 366-67 (2TM Cir. 1986)
(forum clause in arbitration agreement was irrelevant when the cause of action being sued upon
was not itself arbitrable). Those courts holding that personal jurisdiction existed found more
contacts existed than just the agreement to arbitrate in that state. See, e.g., Fireman's Fund Ins.
Co. v. National Bank of Cooperatives, 103 F.3d 888, 893-895 (9" Cir. 1996) (actual arbitration in
state, preceded by agreement to arbitrate in that state was enough to confer jurisdiction).

The Wholesale Agreement clearly provides for arbitration of disputes in Oak Brook,
Illinois. Plaintiff elected not to compel arbitration in this case, however, thus they cannot rely on
the clause to bring suit against the Removing Defendants in Illinois. The Wholesale Agreement
did not provide for the “future consequence” of litigation in Illinois, even though the plaintiff
could have included a forum selection clause for litigation in the Wholesale Agreement, but they
did not do so. The arbitration clause alone is not enough to satisfy the minimum contacts
requirement of the due process clause.

Plaintiff next attempts to show sufficient contacts through Bayshores allegedly seeking
out United Financial to finance the loans for the transactions at issue in this case. It is clear that
“whether the defendant solicited the transaction in question within the proposed forum” is a

relevant fact in assessing minimum contacts. Federated Rural Elec. Ins. Corp. v. Inland Power

11



with an in-state party is alone not enough to establish the requisite minimum contacts.” Jd. at
1277 (citing Burger King, 471 U.S. at 474-75). The Court will then look to “prior negotiations
and contemplated future consequences, along with the terms of the contract and the parties’
actual course of dealing’ [which] may indicate the purposeful availment that makes litigating in
the forum state foreseeable to the defendant.” Hyatt, 302 F.3d at 716. Here, all Removing
Defendants actions relating to the contract took place in California and not in Illinois.

The Wholesale Agreement’s arbitration clause sets forth an Illinois forum for arbitration.
That clause specifically provided that any dispute would be arbitrated in the City of Oak Brook,
Illinois, It is well-settled that parties may consent either implicitly or explicitly in advance to
submit their controversies to a particular forum. See Helicopteros Nacionales de Colombia, S.A.
v. Hall, 466 U.S. 408, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984); Heller Fin., Inc. v. Midwhey
Powder Co., Inc., 883 F.2d 1286, 1290 (7th Cir.1989); Hanson Eng’rs v. UNECO, Inc., 64
F.Supp.2d 797, 800 (N.D. Ill 1999). Consent to suit in a particular forum is an independent
ground for the exercise of personal jurisdiction, separate and distinct from any personal
jurisdiction based on an analysis of minimum contacts. See Burger King, 471 U.S. at 473 n. 14,
105 S.Ct. 2174. Plaintiff argues that the arbitration clause alone is enough to confer personal
jurisdiction over the Removing Defendants.

In this instance, however, the forum selection clause is not enough. The clause only
pertains to the arbitration of disputes between Bayshores and United Financial; it does not
address a forum for litigation. The Plaintiff does not cite to any case where a court held that the
defendant had consented to jurisdiction to litigate in a particular forum based solely on the

parties’ agreement to arbitrate in that forum. The Seventh Circuit has not confronted the issue,

10



Cir.1995), The Illinois long-arm statute’ permits the Court to exercise personal jurisdiction over
a party to the extent allowed under federal due process. See 735 Ill. Comp. Stat. 5/2-209(c);
Dehmlow v. Austin Fireworks, 963 F.2d 941, 945 (7th Cir.1992). In addition, the due process
guarantees of the Illinois Constitution also must be satisfied before personal jurisdiction may be
asserted over an out-of-state defendant. RAR, 107 F.3d at 1276; Jamik, Inc. v. Days Inn of
Mount Laurel, 74 F.Supp.2d 818, 821 (N.D. I1.1999). “Ifjurisdiction is improper under either
the United States or Illinois Constitution, the court cannot exercise jurisdiction over the
defendant.” Brandon Apparel Group, Inc. v. Quitman Mfg. Co. Inc., 42 F.Supp.2d 821 (N.D. Il.
1999), Because the Seventh Circuit has held that “there is no operative difference between the
limits imposed by the Illinois Constitution and the federal limitations on personal jurisdiction,”
the Court will address a single due process inquiry. Hyatt Intern. Corp. v. Coco, 302 F.3d 707,
715 (7 Cir. 2002) (citing RAR, 107 F.3d at 1276; Klump, 71 F.3d at 1371 n.4). See also
Janmark, Inc. v. Reidy, 132 F.3d 1200, 1202 (7" Cir. 1997).

The Due Process Clause of the Fourteenth Amendment restricts personal jurisdiction over

non-resident defendants. RAR, 107 F.3d at 1277. In order for a court to exercise personal

3 The Illinois long-arm statute states, in pertinent part:

[a]ny person, whether or not a citizen or resident of this State, who
in person or through an agent does any of the act hereinafter
enumerated, thereby submits such person ... to the jurisdiction of
the courts of this State as to any cause of action arising from the
doing of any of the following such acts: (1) The transaction of any
business within this State; [or] (2) The commission of a tortious act
within this State....

735 ILCS 5/2-209(a). The statute further provides that “a court may also exercise jurisdiction on
any other basis now or hereafter permitted by the Illinois Constitution and the Constitution of the
United States.” 735 ILCS 5/2-209(c)



Kuhlmann Decl. { 10.) Furthermore, he has not traveled to Illinois in connection with any of the
transactions at issue in this case. (/d.)

Defendant Christina Kim also works for Bayshores as a mortgage loan processor. (R. 12-
1, Kim Decl. 2.) Kim communicated only with plaintiff's Irvine, California office in
connection with the transactions at issue in this case. (Id. 9.) She did not talk to anyone in the
plaintiff's Illinois office and did not travel to Illinois in connection with any of the mortgages at
issue. (Id. J 11.)

Defendant Shelly Yi is a licensed real estate broker who resided and worked in Glendale,
California, (R. 1-1, Compl. 8.) Yi did not have any direct contacts with plaintiff. (R. 11-1, Yi
Decl. 15.) Moreover, Yi did not travel to Mlinois in connection with the transactions at issue.
(id. { 5.) The Complaint alleges that Yi received $57,000 in proceeds from one of the loans at
issue which was authorized by plaintiff's Oak Brook, Illinois office. (R. 1-1, Compl. 4 8.)

Defendant William Kaddis is a licensed real estate broker doing business as William
Kaddis Realty. (Jd. 5.) Kaddis worked in Los Angeles, California. (Jd.) Kaddis served as
defendant Patrizia Lazafame’s real estate agent in the purchase of certain property located on
Lamar Road in Los Angeles, California. (/d.) The Complaint further alleges that Kaddis served
as defendant Saint Andrew’s broker in the purchase of property located on Plymouth Boulevard
in Los Angeles, California. (Id.)

L The Wholesale Agreement

On approximately June 7, 2000, defendant Bayshores entered into a Wholesale

Agreement with United Financial. (R. 1-1, Compl. {12.) The Wholesale Agreement specifically

noted that Bayshores entered it with United Financial, “with offices at 600 Enterprise Drive,


Alloc. & Mgmt, 892 F.2d at 569-70; Tri-Meats, Inc., 2001 WL 292621, at *7. She did not have
any other contacts with Illinois. This receipt, even if it was not a mistake, did not put her on
notice that she could be haled in a court in Illinois. Accordingly, this court does not have
personal jurisdiction over Yi.

Cc. Fiduciary Shield Doctrine

Defendants Kim and Kuhlmann, both citizens of California, also argue that the Court
does not have personal jurisdiction over them under the “fiduciary shield doctrine.” That
doctrine precludes courts in Ilinois from exercising jurisdiction over a non-resident corporate
official when the only contacts that individual has with Illinois are made in his or her corporate
capacity. See Rice v. Nova Biomedical Corp., 38 F.3d 909, 912 (7th Cir.1994) (“This doctrine ...
denies personal jurisdiction over an individual whose presence and activity in the state in which
the suit is brought were solely on behalf of his employer or other principal.”) (internal citations
omitted)), cert. denied, 514 U.S. 1111, 115 S.Ct. 1964, 131 L.Ed.2d 855 (1995). As the Illinois
Supreme Court has noted, where an individual defendant’s conduct in Illinois “was a product of,
and was motivated by, his employment situation and not his personal interests, . . . it would be
unfair to use this conduct to assert personal jurisdiction over him as an individual.” Rollins v.
Ellwood, 565 N.E.2d 1302, 1318 (Ill. 1990).

The fiduciary shield doctrine, however, is discretionary or “equitable,” rather than an
absolute entitlement. Burnhope v. National Mortgage Equity Corp., 567 N.E.2d 356, 363-64 (Ill.
App. Ct. 1990). Moreover, courts have held that it does not apply to “an individual who is a
high-ranking company officer or shareholder [who] has a direct financial stake in the company’s

health.” See R-Five, Inc. v. Sun Tui, Ltd., No. 94 C 4100, 1995 WL 548633, at * 5 (N.D. Ill.

14



Neff, 6 F.Supp.2d 790, 793 (N.D. Ill. 1998) (venue must be proper in both transferor and
transferee court to transfer pursuant to § 1404(a)). Under 28 U.S.C. § 1391, however, venue is
not proper here. The case was removed to this Court based upon a diversity of citizenship.
Section 1391 provides in relevant part that:

A civil action wherein jurisdiction is founded only on diversity of

citizenship may, except as otherwise provided by law, be brought

only in (1) a judicial district where any defendant resides, if all the

defendants reside in the same State, (2) a judicial district in which

a substantial part of the events or omissions giving rise to the claim

occurred, or a substantial part of property that is the subject of the

action is situated, or (3) a judicial district in which any defendant is

subject to personal jurisdiction at the time the action is

commenced, if there is no district in which the action may

otherwise be brought.
28 U.S.C. § 1391(a). For purposes of venue, “a defendant that is a corporation shall be deemed
to reside in any judicial district in which it is subject to personal jurisdiction at the time the
action is commenced.” Jd. § 1391(c). The Court must concluded that venue is not proper here.
Section 1391(a)(1) is not applicable because no defendant resides in Illinois. As can be seen by
the Court’s personal jurisdiction analysis, the overwhelming majority of the events did not occur
in Illinois, so § 1391(a)(2) does not provide for proper venue. Finally, the action may be brought
in the Central District of California, so § 1391(a)(3) is not applicable. Because venue is not
proper in the Northern District of Illinois, the Court cannot transfer the case under § 1404(a).

The Court will, however, transfer this case pursuant to 28 U.S.C. § 1406, which governs

the dismissal or transfer of cases where venue is improper. It is appropriate for this Court to

consider a transfer under this section sua sponte. See, e.g., Greenberg v. Miami Children’s Hosp.

Research Inst., Inc., 208 F.Supp.2d 918, 928 (N.D. Ill. 2002). This Court may, “if it be in the

16



California, where that court will have personal jurisdiction and venue over all the parties to the
action.
BACKGROUND

Plaintiff United Financial Mortgage Corporation (“United Financial”) is an Illinois
Mortgage Banker, with its principal place of business located at 600 Enterprise Drive, Suite 206,
Oak Brook, Illinois, (R. 1-1, Compl. § 2.) United Financial is a national mortgage banker
primarily engaged in the origination and funding of mortgage loans. (Jd.) United Financial has a
sales office located in Irvine, California. (R. 15-1, Kuhlmann Decl. 4 3.) United Financial
initially filed this case in Illinois State Court, seeking damages arising from an alleged mortgage
fraud scheme whereby the Defendants fraudulently induced United Financial to fund mortgage
loans of approximately $1.3 million. (R. 1-1, Compl.) Plaintiff alleges common law fraud, civil
conspiracy, fraud based upon culpable ignorance and reckless disregard, fraud, negligence and
breach of contract. (Jd.) Defendants Bayshores, Kuhlmann, Kim and Yi removed it to this Court
as a diversity action. (R. 1-1, Pet. for Removal.)

Defendant Bayshores Funding Corporation (“Bayshores”) is a California Corporation
with its principal place of business in Newport Beach, California. (R. 1-1, Compl. 6).
Bayshores is a licensed broker engaged in the business of originating residential mortgage loans.
(d.) Bayshores does not have any offices, employees, bank accounts, or property in Illinois. (R.
15-1, Kuhlmann Decl. { 11.) It does not hold meetings in the state. (/d.)

Defendant Russell Kuhlmann is a California citizen residing and working in Newport
Beach, California. (/d. § 1.) Kuhlmann is the President of Bayshores. (R. 1-1, Compl. { 7.)

Kuhlmann has not had any contacts with Plaintiff's employees located in Illinois. (R. 15-1,



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

UNITED FINANCIAL MORTGAGE CORP.,

Plaintiff, No. 02 C 5260

v. Honorable Amy J. St. Eve
BAYSHORES FUNDING CORPORATION,
WILLIAM KADDIS, individually and

d/b/a WM. KADDIS REALTY, RUSSELL
KUHLMAN, CHRISTINA KIM, SHELLY YI
a/k/a SHELLY YI SEO or SHELLY S. SEO,

Q
Q 3 TEQ

ee eee ed

PATRIZIA LANZAFAME, and PHILLIP SAINT CT 19 2
ANDREW, Dag
Defendants.
ORANDUM OPINIO ORDE

Defendants Bayshores Funding Corporation, Russell Kuhimann', Christina Kim and
Shelly Yi (the “Removing Defendants”) have moved to dismiss this case for lack of personal
jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2), or to transfer the case to California under 28
U.S.C. § 1404.? Because the Court finds that the Removing Defendants’ argument that this
Court lacks personal jurisdiction over them has merit, in the interests of justice, the Court sua

sponte transfers venue of this case pursuant to 28 U.S.C. § 1406, to the Central District of

1 Defendant Kuhlmann has corrected the spelling of his name in his declaration. We will
continue to use Plaintiffs spelling of KuhImann’s name in the caption, but will use the correct
spelling in the text of this opinion.

? Defendant William Kaddis has joined the motion. He, however, presented no
independent facts regarding personal jurisdiction or the reasons for transfer. Because this Court
has decided to transfer the case pursuant to 28 U.S.C. § 1406, Kaddis’ motion is dismissed as
moot.

poem


& Light Co., 18 F.3d 389, 394 (7th Cir.1994). In this case, however, Bayshores solicited United
Financial in Irvine, California, not in the Northem District of Iinois. Bayshores never contacted
the Oak Brook, Ilinois office. Its initiation of the business in California does not make its being
sued in Illinois reasonably foreseeable. Accordingly, this factor does not satisfy the due process
requirements of the Fourteenth Amendment.>

Plaintiff also points to the fact that United Financial’s President, Joseph Khoshabe,
signed the Wholesale Agreement in Illinois. It claims that through this signature, the contract
was created in Illinois. The order of events shows that Bayshores initially signed the contract in
California, then forwarded it to United Financial’s office in Irvine, California. In tum, the Irvine
office sent it to Oak Brook, Illinois for signature. While plaintiff correctly states that Mr.
Khoshabe’s signature on the Wholesale Agreement in Oak Brook, Illinois actually created the
contract because it was the last chronological act, Gordon v. Tow, 498 N.E.2d 718, 722-23 (Il.
App. Ct. 1986), “this factor alone is simply not enough to tilt the balance in favor of asserting
personal jurisdiction.” Heller Fin. v. Ohio Sav. Bank, 158 F.Supp.2d 825, 829 (N.D. Ill. 2001).
This is especially true here where there is no evidence that Bayshores knew the contract would be
finalized in Ilinois.

Plaintiff further claims that jurisdiction is appropriate because its Illinois financial office

5 The Removing Defendants’ reliance on Phoenix Airway Inn Assocs. v. Essex Financial
Services, Inc., 1989 U.S. Dist. LEXIS 14361 (N.D. Ill. 1989) and Pathway Financial v. Heaton,
1989 U.S. Dist LEXIS 4600 (N.D. Ill. 1989) is not instructive in this case because both Phoenix
and Pathway involved an analysis of the Illinois long-arm statute before the 1989 amendment
which greatly expanded the reach of the statute. Specifically, the amendment to the statute
provides for jurisdiction “on any other basis now or hereafter permitted by the Illinois
Constitution and the Constitution of the United States.” 735 Ill. Comp. Stat. § 5/2-209(c). This
broad inquiry was not undertaken in Phoenix or Pathway, thus they are not instructive.

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Sept. 12, 1995) (personal jurisdiction existed where defendant was “president, board member,
and (most importantly) shareholder of corporation” and “was not merely obeying the orders of
his superiors.”). “The determinative factor is the individual's status as a shareholder, not merely
as an officer or director.” Plastic Film Corp. of Am., Inc. v. Unipac, Inc., 128 F.Supp.2d 1143,
1147 (NLD. Ill. 2001). There is no allegation that either Kim or Kuhlmann was a shareholder or
had a direct financial stake in the company.

Here, Bayshores employed Kim as a mortgage loan processor. Every contact Kim had
with United Financial was made in her corporate capacity. Kim processed the loan applications
for the four loans in question. She then took the papers to her supervisor, Kuhlmann, for his
teview and signature. There is no allegation that she stood to profit from the alleged
wrongdoing. Furthermore, she did not have any direct contact with Illinois. Accordingly, even if
the plaintiff had established minimum contacts over Kim, the fiduciary shield doctrine would
protect her from personal jurisdiction in Illinois.

Similarly, Kuhlmann’s indirect dealings on the loans in question took place in his
corporate capacity as President of Bayshores. He signed the loan applications. Plaintiff has not
alleged that he stood to profit from the alleged mortgage fraud scheme or that he had a direct
financial stake in Bayshores. Accordingly, the fiduciary shield doctrine prevents this Court from
exercising personal jurisdiction over him.

III. Motion to Transfer Venue

In the alternative of dismissing the case, the Removing Defendants request that the Court

transfer this case to the Central District of California pursuant to 28 U.S.C. § 1404(a). In order to

transfer a case under § 1404(a), the Court must first have proper venue. See TruServ Corp. v.

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