defend a lawsuit in a state in which it has engaged in economic activity); Birnberg, 2003 WL
151929, at *8 (holding that travel from Massachusctts to Illinois was not oppressive duc to
modern advances in communication and transportation) (citation omitted). Third, Illinois has
a significant interest in the adjudication of this case given that Interlease II is an Illinois company
and both Intcrlease 11 and Interlease III have their principal places of business in Illinois.
Finally, defendants’ allegedly tortious conduct caused injury in Illinois. See /nt’I Molding Mach.
Co, v. St. Louis Conveyor Co., No. 01 C 8305, 2002 WL 1838130, at *5 (N.D. Ul. Aug. 12,
2002) (holding that Iinois has a strong interest in adjudicating cases arising from injuries
occurring in its borders). Thus, the court finds that the exercise of personal jurisdiction over
Pegasus and Wiley in this case does not offend traditional notions of fair play and substantial
justice.

Therefore, the court concludes that it is consistent with federal constitutional principles
to exercise personal jurisdiction over Pegasus and Wiley in this case.

c The Fiduciary Shield Doctrine

Based on the principles of fairness required by the Illinois Constitution, Illinois allows
a nonresident defendant to raise a defensc to personal jurisdiction known as the fiduciary shield
doctrine, Rice v. Nova Biomedical Corp., 38 F.3d 909, 912 (7th Cir. 1994) (citing Rollins, 565
N.E.2d at 1313-18). The fiduciary shield doctrine denies jurisdiction over an individual whosc
presence and activity in Illinois were solely on behalf of his employer or other principal. Clark
Prods., Inc. v. Rymal, No. 02 C 6893, 2002 WL 31572569, at *3 (N.D. Ill, Nov. 19, 2002) (citing

Rice, 38 F.3d at 912). The Illinois Supreme Court has stated that where an individual

19



shareholder of a company that does business in the forum to jurisdiction, Further, defendants
argue that even if plaintiffs could make the requisite showing of alter ego status, IAC and ATI
did not have sufficient contacts with Illinois to establish gencral jurisdiction.

Plaintiffs have provided relatively little information regarding the contacts of IAC and
All to Illinois for purposes of general jurisdiction. However, assuming LAC and AI have
sufficient contacts to constitute the continuous and systematic transaction of business in Illinois,
plaintiffs have not provided evidence to impute the contacts of IAC and All to Wiley. The
Seventh Circuit has held that “stock ownership in or affiliation with a corporation, without morc,
is not a sufficient minimum contact.” Cent, States, S.E. & S.W. Areas Pension Fund, 230 F.3d
at 943. The court reasoned that “where corporate formalities are observed, a company’s owners
reasonably expect they cannot be held liable for the acts of the company.” Jd. at 944. Thus, to
impute the contacts of IAC and All to Wiley on the basis of his ownership interest in the
companies, plaintiffs must provide evidence that either justifies piercing the corporate veil or that
Wiley substantially controls the activities of [AC and ATI in Illinois. Biraberg, 2003 WL
151929, at *10. Plaintiffs’ claim of a “good faith basis” to infer Wiley and Pegasus effectively
control AII and Transmeridian is insufficient to attribute these contacts to Wiley. /DS Life Ins.
Co. v. SunAmerican Life Ins. Co., 136 F.3d 537, 540 (7th Cir. 1998) (stating allegations parents
“controlled, directed, and supervised” subsidiaries would be insufficient, without a basis for
piercing the corporate veil, to attribute subsidiarics’ actions to the parent). Plaintiffs have failed
to provide sufficient evidence that Wiley dominated IAC or AII or that corporate formalities
were not observed. Thus, the contacts of IAC and All cannot be imputed to Wiley. Therefore,

the court lacks general jurisdiction over Wiley.

13



cory

aa

communication and the cause of action.’"” Fogelson y. Jatrides, No. 99 C 6892, 2000 WL
631293, at *3 (N.D. Ill. May 12, 2000) (quoting Consol. Ins, Co. v, Vanderwoude, 876 ¥. Supp.
198, 200-01 (N.D. Ind. 1995) (citation omitted)).

In this case, plaintiffs have alleged several communications transmitted to the Northern
District of Hlinois, which have a sufficient relationship to the causes of action. Plaintiffs allege
Pegasus and Wiley made two trips to Illinois, transmitted three proposals and a letter to
plaintiffs’ representative, Coleman, and initiated nineteen phone calls to Coleman. These
contacts were in furtherance of defendants’ proposal to restructure plaintiffs’ leases with
Vanguard. Plaintiffs allege that these contacts were part of the defendants’ tortious interference
with the leases between plaintiffs and Vanguard. As a result of these contacts, plaintiffs alloge
that defendants have been unjustly enriched. Further, these contacts were part of the alleged
fraudulent scheme to negotiate in bad faith over an extended period of time. Thus, a substantial
part of the events or omissions giving rise to the plaintiffs’ claims occurred in this district and
venue is proper. Therefore, the court denies defendants’ motion to dismiss based on Rule
12(b)(3).

Cc Defendants’ Motion to Dismiss Pursuant to Rule 9(b)

1. Standard for Deciding a Rule 9(b) Motion to Dismiss

Rule 9(b) requires a plaintiff to plead the circumstances constituting fraud “with
particularity.” Fxp. R. CIV. P. 9(b). To meet the particularity requirements of Rule 9(b), a
complaint must specify the identity of the person making the misrepresentation, the time, place,

and content of the misrepresentation, and the method by which the misrepresentation was

23


As a result, VAC became owner of 40.6% of Vanguard’s common stock and 37.4% of
Vanguard’s voting stock.

On or about July 26, 2001, Wiley flew to Palwaukec, Illinois and mct with Philip
Coleman (“Coleman”), plaintiffs’ representative. The parties discussed a proposal to restructure
Vanguard's debt to plaintiffs, Wiley purported to be negotiating on behalf of Vanguard and on
the basis of his and Pegasus’s investment in Vanguard,* However, during this time period, Wiley
was neither an officer or director of Vanguard. Wiley told Coleman that Vanguard would breach
the agreements and plaintiffs had to accept a new proposal. On August 1, 2001, Wiley’s
proposal to restructure Vanguard’s debt to plaintiffs was faxed to Coleman. Subscquent to
Wiley’s proposal, plaintiffs received restructuring proposals from David A. Rescino, vice-
president of Vanguard. Vanguard’s failure to comply with the agreements in principle, the
ptomissory notes, and the leases with plaintiffs followed.

Plaintiffs brought this action by filing an eight-count complaint, which was subsequently

amended. In Count I, Mimi alleges breach of contract against Vanguard. In Count II, Interlease

*Under the standard for deciding motions to dismiss pursuant to Rule 12(b)(2) and Rule
12(b)(3), the court resolves any conflicts in the pleadings and affidavits in favor of the plaintiffs,
but accepts as true any facts in the defendants’ affidavits that remain unrefuted by the plaintiffs.
Cont’l Cas. Co. v. Marsh, No. 01 C 0160, 2002 WL 31870531, at *2 (N.D. Ill. Dec. 23, 2002)
(discussing standard for Rule 12(b)(2)); Promero, Inc. v. Mammen, No. 02 C 1191, 2002 WL
31455970, at *7 (N.D. Ill. Nov. 1, 2002) (discussing standard for Rule 12(b)(3)). However, for
purposes of Rule 9(b), the court must take plaintiffs’ allegations as true. Schupak v. Florescue,
No. 92 C 1189, 1993 WL 256572, at *3 (S.D.N.Y. July 8, 1993). Defendants refute that they
“purported to be negotiating on behalf of Vanguard” and offer the declarations of Wiley and
Weiss stating that neither made representations they were negotiating on behalf of Vanguard.
In response, plaintiffs offer only a citation to their complaint to support their assertion. Thus,
for purposes of Rule 12(b)(2) and Rule 12(b)(3) the court accepts Wiley’s and Weiss’s
statements, but for Rule 9(b) the court accepts the allegations of the complaint.

4



defendant's conduct in Illinois is a product of — and is 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, 565 N.E.2d at 1314.

However, there are limitations on the defendant’s ability to use the fiduciary shield
doctrine as a defense.. First, the fiduciary shield doctrine is discretionary or “equitable,” rather
than an absolute cntitlement, and should be applied only where equity demands it. Consumer
Benefit Servs., Inc. v, Encore Mktg. Int'l, Inc., No. 01 C 6985, 2002 WL 31427021, at *3 (N.D.
Ill. Oct. 30, 2002). Second, the doctrine will be removed if the defendant was acting also, or
instead, to serve his own personal interests. Rice, 38 F.3d at 912, Third, the discretion excrcised
by the individual is a factor that a court should consider when determining whether the fiduciary
shield doctrine applies to a case. LaSalle Bank Nat'l Ass'n, 2000 WL 283072, at *1. With those
three exceptions in mind, the court will determine whether the fiduciary shield doctrine prevents
it from exercising jurisdiction over Wiley.

Defendants argue that Wiley is not subject to personal jurisdiction because he was acting
as a fiduciary for Pegasus and plaintiffs have not alleged Wiley attended the meeting on his own
behalf or that he personally benefitted from Pegasus’s conduct. In response, plaintiffs argue
Wiley cannot avail himself of the fiduciary shield because he is the president, chairman, and 91%
owner of Pegasus.

The mere fact that an individual “is a member of management or hoids controlling
positions in a corporation does not nullify the protection of the fiduciary shield.” Jnt’l Fin.

Servs, Corp. v. Didde Corp,, No. 00 C 6433, 2002 WL 398513, at *5 (N.D, Ill. Mar. 14, 2002)

20



we re

that on or about July 24, 2001, Wiley traveled to Illinois to mect with Coleman. Although Wiley
was neither an officer nor a director of Vanguard at the time, he purported to be negotiating on
behalf of Vanguard. Wiley told Coleman that Vanguard would breach its commitments and that
plaintiffs would have to accept a new, less attractive proposal from Vanguard. Correspondence
between Wiley and Coleman concerning the restructuring proposals continued through August
2001, These allegations demonstrate Pegasus’s and Wiley’s roles in extending the time period
for Vanguard and delaying plaintiffs from repossessing their aircraft. Thus, plaintiffs have
satisfied Rule 9(b) by placing Wiley and Pegasus on notice of their roles in the fraudulent
scheme. Therefore, the court denies defendants’ motion to dismiss Count VIII pursuant to Rule
9(b).
Il, CONCLUSION

For the foregoing reasons, the court denies defendants’ motions.

nae. MAY 15 2009 Leneeh. ,

James H. Alesia
United States District Judge

26



athe

Therefore, the court has personal jurisdiction over Pegasus and Wiley. Thus, the court

denies defendants’ motion pursuant to Rule 12(b)(2) to dismiss for lack of personal jurisdiction.

B. Defendants’ Motion to Dismiss for Improper Venue Pursuant to Rule 12(b)(3)
i. Standard for Deciding a Rule £2(b)(3) Motion to Dismiss

In ruling on a motion to dismiss under Rule 12(b)(3), the court takes all the allegations
in the complaint as true unless contradicted by the defendant’s affidavit and may examine facts
outside the complaint, Promero, Inc. v. Mammen, No. 02 C 1191, 2002 WL 31455970, at *7
(N.D. Ill, Nov. 1, 2002), The court must resolve ail factual conflicts and draw all reasonable
inferences in the plaintiff's favor. /d, The plaintiff bears the burden of establishing that venue
is proper. Za.

2. Defendants’ Motion

Defendants argue venue is improper in this district because the events giving rise to the
claims did not occur in Illinois. Plaintiffs argue venue is proper in this district because a
substantial part of the events giving rise to the plaintiffs’ claims occurred in this district.

Venue in a diversity action is proper in “a judicial district in which a substantial part of
the events or omissions giving rise to the claim occurred.” 28 U.S.C. § 1391(a)(2) (“8
1391{a)(2)”). For venue to be proper under § 1391{a)(2), a majority of the events giving rise to
the claim need not occur in the venue, only a “substantial part.” Promero, Inc., 2002 WL
31455970, at *7 (citing Pasulka v. Sykes, 131 F, Supp. 2d 988, 994 (N.D. II], 2001)), The
requirements of § 1391(a)(2) “‘may be satisfied by a communication transmitted to or from the

district in which the cause of action was filed, given a sufficient relationship between the

22



89 C1110, 1989 WI. 165056, at *10(N.D. Ill. Dec, 29, 1989) (discussing tortious interference
case that found contract was breached in Illinois when the payments due in Illinois were not
received).

Further, plaintiffs have demonstrated defendants’ intent to affect an Illinois intcrest.
Plaintiffs have alleged defendants’ conduct was intentional, “Pegasus and Wiley induced the
breach of [sic] by Vanguard of its obligations under the Leases, intentionally, without
justification and through improper means.” (PI.’s Am. Compl. at { 88.) Also, plaintiffs have
demonstrated that defendants knew they were dealing with [Illinois corporations. Defendants met
with Coleman, plaintiffs’ representative, in Illinois on two occasions and contacted Coleman in
Winois through mailings, phone calls, and faxes. In addition, these contacts were part of the
alleged fraudulent scheme to negotiate in bad faith and extend the time period for Vanguard to
use the plaintiffs’ aircraft without payment. See Celozzi, 2000 WL 1141568, at *3 (discussing
FMC Corp. v. Varonos, 892 F.2d 1308 (7th Cir. 1990), in which the Seventh Circuit “determined
that communications by nonresident defendant, coupled with an intent to further her Tllinois
scheme, was a sufficient basis for jurisdiction, and that making such communications as part of
aschemc to defraud an Illinois resident clearly evidenced an intent to affect an Illinois interest.”).
Although portions of the alleged tortious conduct may have occurred outside of Illinois, the
economic injury suffered in Illinois combined with defendants’ intent to affect an JIlinois interest

demonstrated by the defendants’ communications with plaintiffs’ representative constitute

17



with the forum state. /d. at 716. In this casc, defendants argue neither gencral nor specific
personal jurisdiction cxists, The court will address each basis for personal jurisdiction in turn.
a. General personal jurisdiction

To find general personal jurisdiction, the contacts must be “‘so substantial and of such
a nature as to justify suit against [the defendant] on causes of action arising from dealings
entirely different from those activities.” Clearclad Coatings, Inc. v. Xontal Lid., No. 98 C7199,
1999 WL 652030, at *16(N.D. Ill. Aug. 20, 1999) (quoting Glass v. Kemper Corp., 930F. Supp.
332, 338 (N.D. Hl. 1996)). In evaluating whether general jurisdiction exists, courts examine:
(1) whether and to what extent the defendant conducts business in the forum state; (2) whether
the defendant maintains an office or employees within the forum state; (3) whether the defendant
sends agents into the forum state to conduct business; (4) whether the defendant advertises or
solicits business in the forum state; and (5) whether the defendant has designated an agent for
service of process in the forum state. Birnberg v. Milk St. Residential Assoc. Lid. P’'ship, Nos.
02 C 0978, 02 C 3436, 2003 WL 151929, at *3 (N.D. Ill. Jan. 21, 2003) (citing Melicapteros
Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416 (1984)). Plaintiffs allege that
defendants “conduct and, at relevant times, have conducted systematic and continuous business
within the State of Illinois.” (Pl.’s Am. Compl. at 4] 16.) The court will address the contacts of
Pegasus and Wiley in turn.
i. Pegasus

Plaintiffs cite the following contacts in support of their argument that Pegasus conducts

continuous and systematic business in Illinois: Pegasus initiated 2,876 phone calls to Illinois



Reimer Express World Corp., 230 F.3d 934, 939 (7th Cir. 2000). In deciding the motion to
dismiss, the court may receive and consider affidavits from both parties. Greenberg v. Miami
Children’s Hosp, Research Inst., Inc., 208 F. Supp. 2d 918, 922 (N.D. Il. 2002) (citing Kontos
yv, United States Dep't of Labor, 826 F.2d 573, 576 (7th Cir. 1987)). Any conflicts in the
pleadings and affidavits are to be resolved in the plaintiffs’ favor, but the court accepts as true
any facts contained in the defendants’ affidavits that remain unrefuted by the plaintiffs. Cont’
Cas. Co. v. Marsh, No. 01 C 0160, 2002 WL 31870531, at *2 (N.D. Ill. Dec, 23, 2002) (citing
RAR, Ine. v. Turner Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997)).

2. Defendants’ Motion

Ina case based upon diversity of citizenship, a federal district court sitting in IHlinois has
personal jurisdiction over a nonresident defendant only if an Illinois court would have
jurisdiction, Netzky v. Fiedler, No. 00 C 4652, 2001 WL 521396, at *1 (N.D. Ill. May 15, 2001).
For an Illinois court to have personal jurisdiction over a nonresident defendant, personal
jurisdiction must be permitted by: (1) Illinois statutory law; (2) the Illinois Constitution; and (3)
the Constitution of the United States. Cont’'l Cas. Co., 2002 WL 31870531, at *4. With respect
to Illinois statutory law, the Illinois tong-arm statute now extends personal jurisdiction to the
limit allowed under the Illinois Constitution and the Constitution of the United Statcs, LaSalle
Bank Nat’l Ass'n y. Epstein, No. 99 C 7820, 2000 WL 283072, at *1 (N.D. Ill. Mar. 9, 2000)
(citing RAR, Inc., 107 F.3d at 1276). ““Because the Illinois statute authorizes personal!

jurisdiction to the [federal] constitutional limits, the three inquiries ... collapse into two

constitutional inquiries — one state and one federal.’” Cont’l Cas. Co., 2002 WL 31870531, at



TD alleges breach of contract against Vanguard. In Count Ill, Interlease LI alleges breach of
contract against Vanguard. In Count IV, plaintiffs allege fraud against Vanguard and Scabury.
In Count V, plaintiffs allege negligent misrepresentation against Seabury. In Count V1, plaintiffs
allege tortious interference against Pegasus and Wiley. In Count VII, plaintiffs allege unjust
enrichment against Pegasus and Wiley. In Count VIII, plaintiffs allege fraudulent scheme
against all defendants. This court has subject matter jurisdiction over the case pursuant to 28
U.S.C. § 1332 as complete diversity between the parties cxists, and the amount in controversy
exceeds $75,000.00.

In response to this complaint, defendants Pegasus and Wiley have filed a motion to
dismiss for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2)
(“Rule 12(b)(2)”) and for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3)
(“Rule 12(b)(3)”). Defendants also have moved to dismiss Count VII pursuant to Federal Rule
of Civil Procedure 9(b) (“Rule 9(b)”).*

II, DISCUSSION
A. Motion to Dismiss For Lack of Personal Jurisdiction Pursuant to Rule 12(b)(2)

1, Standard for Deciding a Rule 12(b)(2) Motion to Dismiss

On a motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of

proving that personal jurisdiction exists. Cent. States, SE. & S.W. Areas Pension Fund v.

‘Defendants originally filed a motion to dismiss plaintiffs’ complaint on October 25,
2002. Plaintiffs filed an amended complaint on April 14, 2003. On May 8, 2003, the court
granted defendants’ oral motion to apply their motion to dismiss for lack of personal jurisdiction
and venue to plaintiffs’ amended complaint.



sufficient minimum contacts for the court to exercise specific personal jurisdiction over Pegasus
and Wiley.®

Therefore, the court finds Pegasus and Wiley have established minimum contacts with
Illinois.

ii. Fairness

Defendants argue that even if the court finds the requisite minimum contacts, it would
offend traditional notions of fair play and substantial justice to cxercise personal jurisdiction over
them in this case. First, defendants argue the contacts were not substantial enough to find they
“invoked the benefits of protections” of Illinois law. Second, defendants argue the burden of
having to defend in Illinois would be great as defendants’ witnesses, documents, and counsel are
located in California.

The court finds it does not offend traditional notions of fair play and substantial justice
to require Pegasus and Wiley to defend this action in Illinois. First, as discussed previously,
supra Sect. IL.A.2.b.i., defendants should reasonably anticipate being haled into an Ilinois court
because they have committed a tortious act against an Illinois business. See Digital Merch. Sys.,
Inc., 1999 WL 1101769, at *3 (quoting Telular Corp., 1996 WL 616590, at *2). Second,
litigating this case in Illinois would place a minimal burden upon Pegasus and Wiley because
Chicago is a major metropolitan arca and defendants have traveled to Illinois previously. See

Logan Prods., Inc., 103 F.3d at 54 (noting that it is usually not unfair to force a defendant to

Because the court finds personal jurisdiction proper due to the commission of a tortious
act in Illinois, the court need not address plaintiffs’ alternative basis for jurisdiction, the
transaction of business in Illinois.

18


245 F. Supp. 2d 884, 891-92 (N.D. Ill. Oct. 18, 2002) (condensing personal jurisdiction analysis
to a single federal duc process inquiry).

In this case, the parties make no arguments regarding whether personal jurisdiction would
be “fair, just, and reasonable” under the Illinois Constitution. Rather, they dispute whether
personal jurisdiction would comport with federal due process requirements. Thus, the court will
proceed to the federal due process inquiry. See Mac Funding Corp. v. N.E. Impressions, Inc.,
215 F. Supp. 2d 978, 980 (N.D. II]. 2002) (proceeding directly to the federal personal jurisdiction
analysis where parties failed to address Illinois standards and court’s own research revealed
nothing that would indicate that Illinois law would lead to a different outcome than federal law).

Under the Constitution of the United States, the Duc Process Clause of the Fourteenth
Amendment limits a state court’s power to assert personal jurisdiction over a nonresident
defendant. RAR, 107 F.3d at 1277 (citation omitted). Federal due process requires that a
nonresident defendant have certain minimum contacts with the forum state “such that the
maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’”
Ayatt, 302 F.3d at 713 (quoting Int’! Shoe Co. v. Washington, 326 U.S. 310, 316 (1945))
(additional citation omitted). This standard varies depending on whether the jurisdiction alleged
is general or specific. RAR, 107 F.3d at 1277.

General jurisdiction cxists in cases where a defendant has “continuous and. systematic”

business contacts with the forum state. Hyatt, 302 F.3d at 713. In contrast, in specific

jurisdiction cases, the suit must “arisc out of” or be “related to” the defendant’s minium contacts



communicated to the plaintiff. Slaney v. Int'l Amateur Ath. Fed'n, 244 F.3d 580, 597 (7th Cir.
2001). In ruling on a motion to dismiss pursuant to Rule 9(b), the court must “‘read the
complaint gencrously and draw all inferences in favor of [the] plaintiffs.’” Schupak v. Florescue,
No. 92 C 1189, 1993 WL 256572, at *3 (S.D.N.Y. July 8, 1993) (quoting Griffin v. McNiff, 744
F, Supp. 1237, 1244 (§.D.N.Y, 1990)). With this standard in mind, the court will address the
defendants’ argument.

2. Defendants’ Motion

Defendants argue that plaintiffs’ allegations of fraudulent scheme in Count VIII are
insufficient because they do not particularize Pegasus’s or Wilcy’s alleged misrepresentations,
but impermissibly “lump” the defendants together. Thus, defendants assert the court camnot find
personal jurisdiction over Pegasus and Wiley based upon Count VIII.

In cases involving multiple defendants, the complaint should notify cach defendant of the
nature of his alleged participation in the fraud. Fishman v. Meinen, No. 02 C 3433, 2003 WL
444223, at *6 (N.D. IIL. Feb. 24, 2003) (citing Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20
F.3d 771, 777 (7th Cir. 1994)). A complaint that docs not specify which defendants took part
in which activity is insufficient to satisfy Rule 9(b). Jd. (citing Sears v. Likens, 912 F.2d 889,
893 (7th Cir. 1990)). This standard also applies to allegations of fraudulent scheme, which
means that a complaint alleging fraudulent scheme must reasonably notify each defendant of its
role in the scheme. Montgomery Wards, L.L.C. v. Mease, No. 99 C 5697, 2000 WL 556758, at

*5 (N.D. Ill. May 1, 2000).

24



-
‘Minute Order Form (06/97)

‘ict of Illinois

United States District Court, Northern Di

Name of Assigned Judge James H. Alesia Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 02 C 4801 DATE May 15, 2003
CASE Interlease Aviation Investors IT (ALOHA) L.L.C., et al. vs. Vanguard Airlines, Inc., et al.
TITLE

[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintif¥, and (b) state briefly the nature:
of the motion being presented. }

MOTION:

DOCKET ENTRY:

(1) a Filed motion of [ use listing in “Motion” box above.]

(2) ia] Brief in support of motiondue

Bg a Answer brief to motion due___. Reply to answer brief due

(4) o Ruling/Hearingon__ssetfor

(5) Oo Status hearing[held/continued to] (set for/re-setfor]on_ set for at

(6) Oo Pretrial conference[held/continued to) [set for/re-set for] on __set for

(7) a Triaj[set for/re-set for}on___aat.

(8) oOo [Bench/Jury trial] Hearing] held/continued toa

Oo ao This case is dismissed [with/without] prejudice and without costs|by/agreement/pursuant to]
OFRCP4(m) (Cl LocalRule 41.1 COFRCP41(a)(1) [FRCP 41(a)(2),

fart) a [Other docket entry] Enter Memorandum Opinion and Order. The court denies defendants

Pegasus Aviation Inc.’s and Richard 8. Wiley’s motion to dismiss [20-1]. Defendants Pegasus
Aviation, Inc. and Richard §. Wiley have until May 27, 2003 to file a responsive pleading to the
amended complaint.

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

No notices required, advised in open court

No notices required.

number of notices

Notices mailed by judge’s staff.

ov | Notiticd counsel by telephone. MAY 26 2003

vY Duckeling to muil notices. -)
Mail AO 450 form dove spy init ey
Copy to judge/magistrate judge, ue

date mailed notice,

courtroom
cw deputy’s
initials

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



emphasizes the only connection to Illinois was the vendors’ use of an Illinois billing agent or
drop-box payment address.

None of the contacts provided by plaintiffs are sufficient to constitute the continuous and
systematic transaction of business in Illinois. First, the phone calls madc to Illinois are not
substantial enough to subject Pegasus to general jurisdiction. See Greenberg, 208 F. Supp. 2d
at 926 n.6 (stating phone calls from defendant outside forum state to individuals within forum
state are insufficient to provide a basis for specific personal jurisdiction unless message sent
constitutes an intentional tort). Second, Pegasus’s leases with United are also inadequate
contacts to provide general jurisdiction. Defendants have provided the following facts, unrefuted
by plaintiffs, regarding the United leases: Pegasus became lessor by stepping into the shoes of
a Washington, D.C. entity, as the beneficiary of a Utah entity; the leased airplancs were not
based in Illinois and were used in United’s Asia routes; the leases have expired. Because
Pegasus did not solicit, negotiate, or perform the leases in Illinois, the United leases do not
constitute a basis for general jurisdiction. See Rohde v. Cent. R.R. of Indiana, 930 F. Supp.
1269, 1272-73 (N.D. Ill. 1996) (examining where a contract was solicited, negotiated, and
performed to determine whether defendants’ contractual arrangements constituted continuous
and systematic business contacts). Third, Pegasus’s payments to Illinois billing agents for non-
Illinois vendors are also insufficient contacts for general jurisdiction. Federated Rural Elec. Ins.
Corp. v. Inland Power & Light Co., 18 F.3d 389, 395 (7th Cir. 1994) (stating “the purchase of

goods of insurance from the forum state alone is an insufficient foundation upon which to assert

personal jurisdiction”). Fourth, defendants’ infrequent trips to Illinois cannot be characterized



phone numbers from early 2000 to mid-November 2001; Pegasus leases jets to international
carriers, many of which use Chicago’s airports; Pegasus has a contract with United Airlines,
which is based in Illinois, and Pegasus has carned gross revenues in excess of $1] million from
this contract during the past two and a half years; Pegasus paid in excess of $12 million for
goods and services to vendors with Illinois addresses; Pegasus employees traveled to Illinois on
nine separate business trips from November 2000 to January 2002; in addition, Wiley traveled
to Illinois three times and Robert Brown, director and executive vice-president of Pegasus,
traveled to Illinois on another occasion.*

Pegasus refutes that it has continuous or systematic contacts with Illinois. Pegasus is a
California corporation with its principal place of business in California, Pegasus is not
incorporated, headquartered, or qualified to do business in Illinois. Pegasus does not own any
real property in {!inois. Nor does Pegasus have employees, offices or facilities, a mailing
address, or telephone number in Tllinois. Pegasus does not advertise in Illinois. Pegasus argues
the phone calls to Illinois numbers are insufficient to uphold general jurisdiction because the
majority of calls did not relate to any transaction of business in Illinois. With regard to
Pegasus’s leases with United, Pegasus argues the leases were negotiated, entered, and performed
outside of Illinois and do not constitute the systematic and continuous transaction of business.

Pegasus also challenges that payments to vendors constitutes the transaction of business and

‘Plaintiffs fail to cite any case law in support of their argument that the use of Chicago
airports by plaintiffs’ lessees constitutes the continuous and systematic transaction of business
in [linois. The court finds the unilatcral actions of plaintiffs’ lessees insufficient to find
plaintiffs engaged in the continuous and systematic transaction of business in Illinois.

10



*4 (quoting RAR, Inc., 107 F.3d at 1276). If jurisdiction is improper under cither the Illinois
Constitution or the Constitution of the United States, the court cannot exercise jurisdiction over
the defendant. Jd.

The Illinois Supreme Court has held that, under the Illinois Constitution’s guarantee of

due process, jurisdiction is to be “asserted only when it is fair, just, and reasonable to require
a nonresident defendant to defend an action in Illinois, considering the quality and nature of the
defendant’s acts which occur in Illinois or which affect interests located in Illinois.”” Hyatt Int’
Corp. v. Coco, 302 F.3d 707, 715 (7th Cir. 2002) (quoting Rollins v. Ellwood, 565 N.E.2d 1302,
1316 (Il. 1990)). The Seventh Circuit has stated the Hlinois courts “have given little guidance
as to how state due process protection differs from federal protection in the context of personal
jurisdiction.” RAR, 107 F.3d at 1276. Furthermore, the Seventh Circuit has recently found that
“there is no operative difference between the limits imposed by the Illinois Constitution and the
federal limitations on personal jurisdiction.” [Zyatt, 302 F.3d at 715 (citing RAR, 107 F.3d at
1276, Khanp v. Duffus, 71 F.3d 1368, 1371 n.4 (7th Cir. 1995)). Additionally, the Seventh
Circuit has noted that in no case since the Illinois Supreme Court’s 1990 decision in Rollins has
an Illinois court found federal due process to allow personal jurisdiction while Illinois due
process prohibited it. 4 Since those statements by the Seventh Circuit, other courts in the
circuit have bypassed the Illinois due process analysis and conducted only a federal personal
jurisdiction analysis. See Cont'l Cas. Co., 2002 WL 31870531, at *4 (conducting only a federal

duc process analysis because the parties did not present any cvidencc to suggest that the outcome

would be otherwise under state law); United ‘in. Mortgage Corp. v, Bayshores Funding Corp.,



aN rg

(citations omitted). This is due to Ilinois’s recognition that corporate officers, directors, and
shareholders are separate and distinct from the corporation. Cont’! Cas. Co., 2002 WL
31870531, at *7. However, courts have held that the fiduciary shield 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.’” United Fin. Mortgage Corp., 245 F, Supp. 2d at 895 (quoting
R-Five, Ine. v. Sun Tui, Ltd., No. 94 C 4100, 1995 WL 548633, at *5 (N.D. Il. Sept. 12, 1995)).
Thus, in reviewing the personal interest exception, the critical factor is the individual’s status as
a corporate shareholder, not mercly whether he is an officer or director. Plastic Film Corp., Inc.
v. Unipac, Ine., 128 F. Supp. 2d 1143, 1147 (N.D. IIL 2001).

Wiley’s personal interest as a majority shareholder and his ability to exercise discretion
preclude Wiley from availing himself of the fiduciary shield. Plaintiffs assert, and defendants
do not dispute, that Wiley is the 91% owner of Pegasus. Thus, Wiley cannot invoke the
fiduciary shield because his interests as the chief shareholder of Pegasus are coextensive with
the interests of Pegasus. See Kohler Co, v. Kohler Int'l, Ltd., 196 F. Supp. 2d 690, 699 (N.D.
Ill. 2002) (finding fiduciary shield did not apply to defendant -- officer, director, and chief
shareholder of corporation — because his interests were coextensive with those of corporation).
Further, Wiley does not allege that he was merely obeying orders nor does he dispute that he
acted with discretion. See Ruca Hardware, Ltd. v. Ruca Chien, No. 94 C 3635, 1994 WL
548196, at *5 (N.D. Ill. Oct. 4, 1994) (finding fiduciary shield inapplicable where defendants
fajled to allege their actions were required by their employer). Thus, the court finds the Illinois

fiduciary shield doctrine inapplicable to Wiley.

21



The representations made by defendants at the January 25 meeting led plaintiffs to enter
several agreements in principle on March 8, 2001,’ Under the terms of these agreements,
plaintiffs agreed to defer Vanguard’s obligations under the leases, and Vanguard agreed to
provide each plaintiff with a promissory note for the deferred lease payments. However,
Vanguard has not made the necessary payments on the promissory notes or on the original leases.
Additionally, Vanguard has breached the terms of the agreements in principle.

Plaintiffs allege that from December 2000 through July 2001, Pegasus and Richard 8.
Wiley (“Wiley”), president of Pegasus, effectively gained control of Vanguard through various
investment vehicles. Vanguard was experiencing financial difficultics and needed financing.
Wiley and Pegasus were aware of Vanguard’s leases with plaintiffs and, according to plaintiffs,
made a modification of plaintiffs’ leases a condition precedent to providing financing to
Vanguard. Plaintiffs allege on information and belief that subsequent to March 8, 2001, while
Pegasus and its affiliates were receiving security deposits, lease payments and parts support from
Vanguard, Wiley and Pegasus induced Vanguard to breach the agrecments in principle, the
promissory notes, and the leases with plaintiffs. In May 2001, Pegasus, through Vanguard
Acquisition Company (“VAC”), a Pegasus subsidiary, loaned Vanguard $3.5 million in

exchange for demand notes, which were applied to the purchase of common stock in July 2001.

2In their memorandum in opposition to defendants’ motion to dismiss, plaintiffs attempt
to include a February 14 phone call with defendants as a basis for entering the agrecments on
March 8. However, plaintiffs’ complaint alleges only that the representations made at the
January 25 meeting induced plaintiffs to enter the agreements on March 8 and do not refer to the
February 14 phone call.


Therefore, the court finds Pegasus and Wiley are not subject to gencral personal

jurisdiction. Thus, the court will determine whether specific personal jurisdiction is appropriate.
b. Specific personal jurisdiction

In determining whether specific personal jurisdiction exists, the court must first address

whether the defendant has ‘purposefully established mimimum contacts with the forum State.’”

Hyatt, 302 F.3d at 716 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985)).

It is crucial that the court determine whether the defendant “‘should reasonably anticipate being
haled into court [in the forum State].’” /d. (quoting Burger King Corp., 471 U.S. at 474 (citation
omitted)). It is reasonable for a defendant to anticipate being haled into court in the forum state

when it has “purposefully avail[ed] itself of the privilege of conducting activities’ there.” /d.
(quoting Burger King Corp., 471 U.S. at 475 (cilation omitted).

Second, the court must determine whether those contacts would make personal
jurisdiction “reasonable and fair under the circumstances.” RAR, 107 F.3d at 1277. After
minimum contacts have been established, a defendant “can only escape jurisdiction by making,
a ‘compelling case’ that forcing it to litigate in [the forum] would violate traditional notions of
fair play and substantial justice.” Logan Prods., Inc. v. Optibase, Inc., 103 F.3d 49, 53 (7th Cir.
1996) (quoting Burger King Corp., 471 U.S. at 477). In assessing whether jurisdiction is
consistent with fair play and substantial justice the court should consider: (1) the burden on the
defendant in litigating in the forum; (2) the interests of the forum state; (3) the plaintiff's interest

in obtaining convenient and effective relief; (4) the interests of the interstate judicial system in

obtaining an efficient resolution of the controversy; and (5) the interests of the several states in

14



With regard to minimum contacts, courts have recognized that “‘one who commits
tortious acts against an Illinois business should reasonably anticipate being haled into court
there.” Digital Merch. Sys., Inc. v. Oglesby, No. 98 C 8003, 1999 WL 1101769, at *3 (N.D. IIL.
Nov. 30, 1999) (quoting Te/ular Corp. v. Vitech Am., Inc., No. 96 C 4749, 1996 WL 616590, at
*2(N.D. Ill. Oct. 21, 1996)). “Therefore, ‘[a]llegations of tortious conduct directed at an Illinois
business ... cstablish the minimum contacts necessary under the fedcral due process clause.’”
fd, (quoting Telular Corp., 1996 WL 616590, at *2). Further, “the state in which the injury (and
therefore the tort) occurs may require the wrongdoer to answer for its deeds even if events were
put in train outside its borders.” Janmark, Inc. v. Reidy, 132 F.3d 1200, 1202 (7th Cir. 1997).
Thus, even where all other conduct takes place elsewhere, jurisdiction is proper if the injury
transpires in Illinois. Celozzi v, Boot, No. 00 C 3285, 2000 WL 1141568, at *3 (N.D. Ill. 2000)
(citing Stein v. Rio Parismina Lodge, 695 N.E.2d 518, 523 (Ill. App. Ct. 1998)). But, where the
injury is economic, the plaintiff must additionally demonstrate an intent to affect an Illinois
interest. /d. (citing Arthur Young & Co. v. Bremer, 554 N.E.2d 671, 676 (Ill. App. Ct. 1990).

In the instant case, plaintiffs have alleged an economic injury in Illinois as a result of
defendants’ tortious conduct. Two of the plaintiffs are Illinois corporations, Interlease II is an
Illinois company and both Interlease {I and Interlease III have their principal places of business
in Illinois. Plaintiffs allege Vanguard paid $5.44 million in lease payments to Pegasus while
Vanguard failed to make any lease payments to plaintiffs. The breach of contract by Vanguard,
allegedly induced by Pegasus and Wiley, occurred in Illinois where the lease payments were to

be received by two of the plaintiffs. See Publ’n Mgmt. Inc. vy, Am. Def. Preparedness Ass'n, No.



I. BACKGROUND'

Defendant Vanguard Airlines, Inc. (“Vanguard”) leased several aircraft from plaintiff
Interlease Aviation Investors 1] (ALOHA) L.L.C. (“Interlease IT”), plaintiff Interlease Aviation
Investors HI (TACA) L.L.C. (“Interlease HI”), and plaintiff Mimi Leasing Corp. (“Mimi”)
(collectively, “plaintiffs”). Due to financial hardship, Vanguard later sought to modify the
leases. As a result, Vanguard and plaintiffs entered into several agreements in principle, under
the terms of which Vanguard issued promissory notes for the amounts of the deferred rents.
Vanguard has not made the necessary payments on these promissory notes or on the leases.

On or about January 25, 2001, representatives of Vanguard and defendant Seabury Group
LLC (“Seabury”) met with plaintiffs and informed them that: (1) Vanguard was insolvent; (2)
Vanguard had retained Seabury to provide financing expertise; (3) Vanguard had strategic plans
to ensure reliability and reduce costs by converting its fleet to a different type of aircraft leased
from Pegasus Aviation, Inc. (“Pegasus”); (4) Pegasus had committed to investing over $7.5
million in capital in Vanguard, $4 million of which had closed; (5) approximately $3 million of
additional capital to be invested by Pegasus was contingent upon plaintiffs’ deferral of
Vanguard’s obligations; (6) Vanguard’s economic survival depended upon plaintiffs deferring
Vanguard’s lease obligations; and (7) as a result of Pegasus’s investment in Vanguard, it would

become a substantial Vanguard shareholder.

'The following facts are taken from plaintiffs’ amended complaint.

2



ev me

However, the Seventh Circuit has recognized that the particularity requirement of Rule
9(b) must be relaxed where the plaintiff lacks access to all facts necessary to detail his claim, and
that is most likely to occur where the plaintiff alleges a fraud against one or more third parties.
Corley v. Rosewood Care Ctr., Inc,, 142 F.3d 1041, 1051 (7th Cir. 1998). This is appropriate
as ““[i]t is obvious that a plaintiff may not be privy to the workings of a group of defendants who
have acted in concert to defraud him.”” Resha/ Assocs., Inc. v. Long Grove Trading Co., 754 F.
Supp. 1226, 1231 (N.D. Ill. 1990) (quoting Lincoln Nat'l Bank v. Lampe, 414 F. Supp. 1270,
1279 (N.D. IIL. 1976)). But, the plaintiff is expected to “identify the particular defendants who
allegedly dealt with him, and ... describe the circumstances under which particular defendants
dealt directly with him,’” Jd. (quoting Lincoln Nat'l Bank, 414 F. Supp. at 1279).

In this case, plaintiffs have alleged sufficiently Pegasus’s and Wiley’s roles in the
fraudulent scheme. In Count VIII, plaintiffs allege that all defendants, acting in concert and
through a series of deceptions, schemed to defraud plaintiffs with the intent that Vanguard could
continue to operate plaintiffs’ aircraft without paying rent. Specifically, plaintiffs allege that
‘Vanguard, and the other defendants purportedly acting on behalf of Vanguard, negotiated in bad
faith with plaintiffs over an extended period of time so that Vanguard could continue to operate
the aircraft during the 6-9 month period necessary to add the Pegasus aircraft to Vanguard’s
operating certificate and defendants could delay plaintiffs from repossessing their aircraft until
Vanguard no longer needed them.” (PI.’s Am, Compl. at 4 95.)

The specific actions of Pegasus and Wiley in this scheme are stated in the realleged

paragraphs detailing the tortious interference claim against Pegasus and Wiley. Plaintiffs allege

25


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

INTERLEASE AVIATION INVESTORS IT
(ALOHA) L.L.C., an Illinois limited liability
company, INTERLEASE AVIATION
INVESTORS III (TACA) L.L.C., an lowa
limited liability company, and MIMI
LEASING CORP., an Jowa corporation,

Plaintiffs,
Vv.

VANGUARD AIRLINES, INC., a Delaware
corporation, PEGASUS AVIATION, INC.,

a foreign corporation, SEABURY GROUP,
LLC, a New York limited liability company,
BRIAN GILLMAN, ELLEN N. ARTIST,
DAVID A. RESCINO, THOMAS W, MAHR,
and RICHARD S. WILEY,

Defendants.

we SS SS SS SH SSS SS SS ee

DOCKETER

MAY 3 & 2003

Case No: 02 C 4801

Judge James H. Alesia

MEMORANDUM OPINION AND. ORDER

Currently before the court are defendants Pegasus Aviation, Inc.’s and Richard S.

Wiley’s: (1) motion to dismiss plaintiffs’ amended complaint for lack of personal jurisdiction,

pursuant to Federal Rule of Civil Procedure 12(b)(2); (2) motion to dismiss plaintiffs’ amended

complaint for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3); and (3)

motion to dismiss Count VIII of plaintiffs’ amended complaint pursuant to Federal Rule of Civil

Procedure 9(b). For the following reasons, the court denies defendants’ motions.

ale



as continuous or systematic. Finally, it is undisputed Pegasus has never been incorporated in
Illinois, maintained an office or employee in Illinois, designated an agent for servicc of proccss
in Mlinois, or advertised in Illinois, Thus, the court lacks general personal jurisdiction over
Pegasus.
ii. Wiley

Plaintiffs assert Wiley is subject to general personal jurisdiction based upon the contacts
of companies under Wilcy’s virtual control. First, plaintiffs point to the contacts of Intemational
Aero Components (“IAC”) of which Wiley was one of the company’s two directors and 80%
shareholder. IAC, a now-defunct Arizona corporation located in Arizona, had contacts with
twenty-two vendors and cleven customers in Ilinois. Second, plaintiffs cite to the contacts of
Airlinc Investments, Inc. (“AH”), which thcy claim to be under the control of Pegasus and Wiley.
All is the 100% owner of Vanguard Acquisition Company (“VAC”), which is a part-owner of
Vanguard Airlines. All is also 100% owner of Transmeridian Acquisition Company, which
owns Transmeridian Airlines. Vanguard Airlines and Transmeridian Airlines operated out of
Chicago airports. Plaintiffs assert they have been unable to determine the ownership of All
because information regarding AIJ’s management and control is within the exclusive possession
of the Pegasus legal department. However, plaintiffs allege AII is owned and operated by
Pegasus managers as part of their compensation. AII has never issued stock. Plaintiff's claim
a good faith basis to infer that Wiley and Pegasus effectively control All and Transmeridian.

Defendants argue Wiley’s relationships to IAC and ATI are irrelevant because plaintiffs

have failed to make a showing of alter ego status, which is required to subject the individual

12



furthering fundamental substantive policies, fd. The court will now apply the above principles
to Pegasus and Wiley.
i. Minimum contacts

Because Pegasus and Wiley share the same contacts with Illinois, the court will address
simultaneously whether it is constitutional to assert personal jurisdiction over both of them. In
the complaint, plaintiffs allege defendants Pegasus and Wiley are subject to jurisdiction because
“plaintiffs’ causes of action arise from their transaction of business and commission of a tortious
act within the State of Ilinois.” (P1.’s Am. Compl. at 7 16.) In support of specific jurisdiction,
plaintiffs cite the following contacts: defendants made two trips to Illinois on July 24 and
August 9, 2001 to meet with Coleman, plaintiffs’ representative; defendants transmitted three
proposals and a letter to Coleman in Illinois via fax; and defendants initiated nineteen phonc
calls to Coleman in Illinois over a seven-month period.

Defendants argue that none of the causes of action plaintiffs allege “arise out of any of
the Ilinois contacts cited by plaintiffs. First, defendants assert the tortious interference claim
could not have arisen out of defendants’ contacts in Illinois because the party allegedly interfered
with— Vanguard -- did not participate in any of the contacts. Second, defendants argue the unjust
enrichment claim does not arise out of any of defendants’ contacts with Illinois because neither
the meetings nor the other contacts led to any restructuring of the leases. Third, defendants claim
the fraudulent scheme cannot have arisen out of the contacts because the alleged co-conspirators,
Scabury and Vanguard, were not participants in any of the contacts and none of the contacts are

alleged to have resulted in any detrimental action or inaction.

15