and other evidence in deciding the motion. Id, In cither cz

sc. the burden of proving that jurisdiction
exists rests with the plainaft, Id.

Defendants contend that diversity jurisdiction is lacking because: (1) the amount in
controversy is dependent on the viabifity of the tortious interference with contract claim asserted in
Count VIL of the amended complaint; and (2) that claim is barred by res judicata. Defendants?
argument is based on a misunderstanding of the mechanics of subject matter jurisdiction. The
existence of subject matter jurisdiction is determined at the Ume a lawsuit is filed, not wecks or
months later. Grinnell Mut, Reins. Co, v. Shierk, 121 #.3d 1114, 1116 (7 Cir, 1997). Thus, if the
parties are diverse and the requisite amount is in controversy at the inception of the suit. jurisdiction
attaches, regardless of the impact of subsequent events. Id. (°Y1}f the amount in controversy excceds
the jurisdictional amount when a suit is filed in federal court, the fact that subsequent events reduce
the tolal amount in controversy will not divest the court of diversity jurisdiction.”). As aresull, even

if Count VULis now barred by res judicafe or collateral estoppel, its dismissal will not destroy the

Court's jurisdiction unless the claim was unfounded at the ime the lawsuit was filed.

Ilinois preclusion principles apply only to final judgments. People ex rel. Burris v,

Prog ive Land Developers, Ine. 602 N.E.2d 820, 824-25 (IH. 1992) (Under the doctrine of res

judicata, a final judgment on the mert

rendered by a court of competent jurisdiction is conclusive

as to the rights of the parties and their privics.”); American Family Mut. fns. Co. v. Savickas, 739

N.

d 445, 451 GM. 2000) (stating thata “final judgment on the merits” is a prerequisite for

collateral estoppel). The state court order on which defendants’ preclusion argument is based w
not issued until November 7, 2003, nearly ten months after this suit was fited. (See Dels.” Jt

Combined Mot. Dismiss, Ex. C.) Given that chronology. state preclusion principles could not

4.


Conclusion
For the reasons stated above, defendants’ joint combined motion pursuant io Rules $2(b)(1)

and 12(b}(G) to dismiss the amended complaint is denied.

ENTER:

UNITED STATES DISTRICT JUDGE
PAUL FE. PLUNKETT

DATED: _o@- 9- OY


conversion. (Id. | 30.) However, the common stock was not issued and no accrued dividends were
paid to Lunding. (Id.)

On May 4, 2002, Biocatatyst announced (hat the majority of convertible preferred
sharcholders had consented to rescind the 1993 issuance of the convertible preferred stock. (Id. 4
34.) Despite Lunding’s demands, Biocatalyst refused to reinstate the convertible preferred stock,
issue common stock to him for the preferred stock he tendered or pay him lor the accrued dividends
on the preferred stock. (a 4/40.) Biocatalyst also failed (o pay funding his annual salary and bonus
in accordance with the employment agreement. (Id. 4 98.)

Sometine before June 25, 2003, Lunding initiated an arbitration proceeding over the
employment agreement dispute. (Defs.” It Combined Mot. Dismiss, Ex. A.) Ultimately, the
arbitrator upheld Lunding’s claim, though not in the amount he had requested. (Id.) Subsequently,

the arbitration award was confirmed by the Circuit Court of Cook County. (id. Ex. C.)

Discussion

Chere are two kinds of Rule 12(b)(}) motions: those that attack the sufficiency of the
jurisdictional allegaions and those that attack the factual basis for jurisdiction. Facial attacks are
subject to the same standard as motions pursuant to Rule 12(b)(6); that is, the Court accepts as truc

all well-pleaded factual allegations of the complaint, drawing all reasonable inferences in plaintiffs

favor. United Phosphorus, Lid. v. Angus Chem. Co,, 322 F.3d 942,946 (7" Cir, 2002), cert. denied,

1248. CL $33 (2003). However, in factual attacks, like this one, the Court may consider affidavits


possibly have barred Count VITL at the start of this suit.’ Because that claim, and its $700,000.00
damage request, was viable at the lawsuit’s inception, the Courts diversity jurisdiction attached
when the suit was filed and remains in tact, regardless of the course of subsequent events
Delendants’ motion to dismiss for lack of subject matter jurisdiction is, therefore, denied.”

‘The Merits

Ona Rule 12(b)(6) motion to dismiss, the Court accepts as truc all well-pleaded factual

allegations ofthe complaint, drawing all reasonable inferences in plaintiffs favor, Forseth v. Village

of Sussex, 199 F.3d 363, 368 (7th Cir. 2000). No claim will be dismissed unless “it is clear that no

relief could be granted under any set of facts that could be proved consistent with the allegations.”

Uishon v. King & Spalding, 467 U.S. 69, 73 (1984).

Leven ifthe Court retains jurisdiction, defendants say that the tortious interference claim must
be dismissed because it is barred by prectusion principles. ‘This is the second me defendants have

raised this argument. When they did so the first time, they submitted various arbitration-related

documents as support and urged the Court to take judicial notice of them. That we dectined to do.

See 919/03 Mem, Op. & Order.) This time, defendants rely on the state court's order confirming

The result would be the same if defendants” argument were based on the arbitration award
itsell, (assuming. arguendo, that we could accord it preclusive effect, see Brotherhood of Maint, of
Way Employees v. Burlington N. R.R. Co., 24 F.3d 937, 940 (1994) (stating that “[fJederal courts .
- enforce rules of preclusion [based on] the norms of the tribunals that rendered the judgments,” and
thus, preclusive elect of arbitration award “depends on the force the arbitrator . . . gives to [it}")),
because the award was issued five months after Lunding filed this suit. (See Dels." Jt. Combined Mot.
Disnviss. Ex. C. 11/7/03 Order (incorporating id., Ex. A, 6/25/03 Arbitration Award).)

BC,

“Given the Court's resolution of this issue, we need not address Lunding’s argument that his
claims would satisfy the jurisdictional amount even if Count VHT were excluded from the
calculation

5.


Minute Ordee-Forms (06:97)

United States District Court, Northern District of Illinois

Name of Assigned Judge Paul E. Plunkett Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 03 C 696 DATE 2/9/2004
CASE FRANKLIN LUNDING, JR. vs. BIOCATALYST RESOURCES, INC.,et al
TITLE

[In the following box (a) indicate the party filing the motion, c.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented. |

MOTION:

DOCKET ENTRY:

(ly oO Filed motion of [ use listing in “Motion” box above.]

(2) oO Brief in support of motion due

(3) a Answer brief to motion duc___. Reply to answer bricfdue_

(4) o Ruling/Hearing on____set for__at.

(5) a Status hearing[held/continued to] [set for/re-set for]on___set ffor__ at
(6) a Pretrial conference[held/continued to] [set for/re-set for]on ss setfor at
(7) a Trial[set for/re-set for]on ss at__

(8) 0 (Bench/Jury trial] [Hearing] held/continued to at.

(9) i) This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OFRCP4(m) DO Local Rule 41.1 DOFRCP41(a)(1) [2 FRCP41(a)(2).

(0) 4 [Other docket entry) | ENTER MEMORANDUM OPINION AND ORDER: Defendants’ joint
combined motion pursuant to Rule !2(b)(1) and 12(b)(6) to dismiss the amended complaint is denied.
Status hearing set for 3/10/04 at 9:30a.m.

(1) ff {For further detail sce order attached to the original minute order.]

No notices required, advised in open court. Document

Number

No notices required. ber of no

Notices mailed by judge’s staff.

Notified counsel by telephone.

Y | Docketing 10 mail notices.

Mail AO 450 form, dae men

Y | Copy to judge/magistrate judge.

date mailed notice
courtroom,

TBK deputy's
initials

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



the arbitration award, a document that is unquestionably subject to judicial notice. See, eg.. Henson

SC Credit Servs., 29 F.3d 280, 284 (7! Cir, 1994) (stating that federal court can take judicial
notice of state court orders). The only question is whether that order satisfies the elements of res
judicata or collateral estoppel under ([finois law

The answer is no. Res judicata and collateral estoppel apply only if, among other things, the
arbitration that the state court confirmed finally adjudicated a claim or issue that Lunding is
attempting to Tiligate here, American family Mut. Ins. 739 N.E.2d at 451 (stating that the “party

sought to be

opped] must actually have litigated the issue in the first suiland a decision on the
issue must have been necessary to the judgment in the first litigation” for collateral estoppel to
apply); Progressive Land Developers, 602 N.E.2d at 825 (stating that identical causes of action in
the bvo proceedings is a prerequisile for res judicata). Unfortunately, we cannot tell [rom either the
state court order, or the arbitration award that iL incorporates, which claims and issues were actually
decided by the arbitrator. The arbitration award orders Biocatalyst to pay Lunding $346.632.16 “for

his claim.” as well as various smaller sums for fees and costs, and denies Biocatalyst’s counterclaim

nits entirety. (See Dels.’ Jt. Combined Mot. Dismi

A, 6/25/03 Arbitration Award.) The

award docs nol, however, des:

ribe the claims and issues that were adjudicated or explain the
arbilrator’s reasoning for his decision, The state court order is similarly silent on the substance of
the issues involved in the proceeding. (See id., Ex. C, 147/03 Order.) Absent some judicially
noticeable evidence that establishes exactly what was adjudicated by the arbitration, and defendants
have provided none, their motion to dismiss Count Vion the grounds of res judicata or collateral

estoppel is denied,

-6-


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

FRANKLIN LUNDING, JR, )
)
Plaintiff, )
)
V ) No. 03 C 696

) Paul EK. Plunkett, Senior Judge
BIOCATALYST RESOURC )
INC., et al., )
)
Defendants. )

MEMORANDUM OPINION AND ORDER

Franklin Lunding, Jr. has sued defendants under a variety of theories for their alleged failure
to tender certain stock, dividends and other payments to him, Defendants have filed a joint
combined motion pursuant to Federal Rules of Civil Procedure ("Rule") 12(b)(1) and 12(b)(6) to

dismiss the amended complaint. For the reasons set forth below, the motion is denied

Jn the early 1980s, Lunding, defendant Silverman and others formed The Prozyme Company.
(Am. Compl. 4] 16.) Lunding was the president and CEO of Prozyme. (fd.) Sometime later,
Silverman lef Prozyme and formed PPL, a company that acted as a distributor for Prozyme. (Id. §
17.)

In the carly 1990s, Lunding formed a new company, Biocatalyst, to purchase all of the

outstanding stock of both Prozyme and PPL. (Id. §f) 19-20.) In carly 1993, pursuant to an

oD



exchange/purchase agreement, Biocatalyst common stock was used to purchase the stock of both

Prozyme and PPL. (ld. §) 19; id. _ A, Exchange/Purchase Agreement, ix. B, Common Stock

Subscription Agreement.) In addition, Biocatalyst created a serics of convertible preferred stock,

which was exchanged for the Prozyme and PPL sharcholders* agreement to release any claims they

had against those companies. (Id. $4 21, 22; id., Ex. A, Exchange/Purchase Agreement, Ex. B,
Preferred Stock Subscription Agreement.) As a result of the exchange/purchase, Lunding received
325 shares of Biocatalyst convertible preferred stock. (Id.. Ex. A, Exchange/Purchase Agreement,
Tix. D.)

Landing became chairman, president and a director of Biocatatyst and entered into an employment

agreement with the company that entitled him to a certain salary, bonus and other benefits

throughout the life of the agreement. (ld. 4} 20; id. Ex A. Exchange/Purchase Agreement, Ex. 1°,

Employment Agreement.)

In June 1999, Biocatalyst’s shareholders removed Lunding as a director and CEO and
replaced him with Ron lorio. (Id. 4} 25.)

In May 2001, Lunding tried to convert 275 of his shares of Biocatalyst preferred stock to

common stock. (Id. 27.) The conversion rate in the preferred stock certificate of designations

(“certificate”) was four shares of common slock for cach share of preferred. (Id. | 28.) In addition,
upon conversion, Lunding was entitled to the unpaid accumulated dividends on his preferred stock,
which totaled $11,550.00, (Id. 4] 29.)

lorio, who was then the CEO of Biocatalyst, acknowledged receipt of Lunding’s preferred

slock. directed that it be converted and had the corporate stock ledger changed to reflect the