Cytomedix’s complaint does not describe a connection between the subject of its patent suit
and its bankruptcy reorganization. Apart from the jurisdictional allegations we have mentioned, the
complaint is devoted to asserting factual and legal bases for its infringement claims. In its brief,
however, Cytomedix sets forth three reasons why “related to” bankruptcy jurisdiction is proper. First,
it points out that its patent case was filed before the effective date of its reorganization plan. Because its
assets did not re-vest until that effective date, Cytomedix argues, its patent case remained property of
the bankruptcy estate, subject to bankruptcy jurisdiction. Cytomedix next argues that even if its patent
suit was not included in the bankruptcy estate for purposes of distribution to creditors, the outcome of
this case will nonetheless impact creditor recovery through its influence on the company’s stock. In
addition, Cytomedix cites the broad reservation of jurisdiction provided for in its reorganization plan
and argues that the bankruptcy court intended to resolve any future dispute involving property of the
bankruptcy estate.

First, we address the timing of the complaint. The record shows that Cytomedix’s
reorganization plan was confirmed on June 12, 2002 and was to take effect on July 11, 2002. See Def.
PPAI’s Ex D; Order of Confirmation; Pl.’s Ex 3; Confirmed Plan. The complaint in this case was filed
on July 3, 2002. There is no question, therefore, that Cytomedix filed its complaint before its
reorganization plan became effective. At the time, Cytomedix remained under bankruptcy court
supervision, and its assets did not re-vest until the plan’s effective date a week later. See Pl’s Ex 3;
Confirmed Plan at 35. But this circumstance alone is not enough to confer bankruptcy jurisdiction over
the case. As defendants emphasize, the complaint was filed after the reorganization plan had been

confirmed. And contrary to Cytomedix’s position, plan confirmation is an important turning point for

4


CONCLUSION
For the reasons stated above, the Court grants PPAI’s motion to reformulate jurisdiction
[docket item 7-1] and individual defendants Smith, Buzenius and Pennie’s motion to dismiss for lack of
personal jurisdiction [docket item 8-1]. The motions are otherwise denied. Florida Platelet Gel
Symposium’s motion to dismiss [9-1] is terminated as moot. PPAI is directed to answer the complaint

within 14 days.

MATTHEW F. KENNEYLY
United States District Judge

Date: January 28, 2003


liquidation analysis and were not calculated as part of its assets for distribution in bankruptcy. See
Def’s Ex J; 6-7-02 Conf. Hearing at 154:7-15. As Cytomedix acknowledged during its bankruptcy
proceedings, it will retain the total amount of any damages awarded in this case. See Def’s Ex J, 6-6-
02 Conf. Hearing at 87:11-20. Under the company’s confirmed reorganization plan, its creditors have
no claim on the proceeds of potential patent infringement actions. See Pl’s Ex. 3 at 29. Funding for the
plan comes exclusively from the funds of the bankruptcy estate, income generated by operation of the
reorganized debtor’s business, and fresh capital raised through a private placement offering. See id.
Thus, we disagree with Cytomedix that this patent case will affect the implementation of its
reorganization plan. The outcome of the case will have no impact on the distribution of the estate or the
allocation of property among creditors.

We also reject Cytomedix’s contention that its success or failure in the case will affect creditor
recovery through the impact such results might have on shares of stock that creditors received during
reorganization. The adjudication of this case may have many indirect effects, including the influence on
stock value that Cytomedix proposes. But the Seventh Circuit has construed “related to” jurisdiction
narrowly, rejecting litigants’ efforts to obtain bankruptcy jurisdiction over controversies that do not
directly concern the amount of property available for distribution. See, e.g., In re FedPak Systems,

Inc., 80 F.3d 207, 214 (7" Cir. 1995) (finding “related to” jurisdiction over intellectual property rights
dispute inappropriate in part because the effect of the case on the flow of royalty payments to the
bankruptcy estate were “at best speculative and hypothetical’). Neither of the cases Cytomedix cites,
In re Ames Department Stores Inc., 190 B.R. 157, 161 (S.D.N.Y. 1995) (“related to” jurisdiction

proper where recovery in the case was accounted for in the structure of the reorganization plan),


purposes of bankruptcy jurisdiction. See Pettibone Corp. v. Easley, 935 F.2d 120, 122 (7th Cir.

1991). Once a plan is confirmed, bankruptcy jurisdiction is sharply reduced. See id.; In re Schwinn
Bicycle Co., 210 B.R. 747, 754 (Bankr. N.D. Ill. 1997). Though “related to” jurisdiction can extend

to post-confirmation disputes, Jn re S.N.A. Nut Co., 206 B.R. 495, 500 (Bankr. N.D. Ill. 1997), the
exercise of such jurisdiction is appropriate only to ensure that reorganization plans are implemented and
to protect estate assets devoted to implement the confirmed plan. Schwinn, 210 B.R. at 755 (citing
Matter of Energy Cooperative Inc., 886 F.2d 921, 929-930 (7th Cir. 1989)). More generally,

“related to” jurisdiction exists only where adjudication of the case would affect the property available
for distribution or the allocation of property among creditors. See Xonics, 813 F.2d at 131 (7" Cir.
1987); In re Fed Pak Systems Inc., 80 F.3d 207, 213-14 (7" Cir. 1995); Zerand-Bernal Group

Inc. v. Cox, 23 F.3d 159, 161-162 (7 Cir. 1994). The question, therefore, is not whether

Cytomedix remained under bankruptcy supervision when the case was filed. Rather, “related to”
jurisdiction depends on whether the outcome of this infringement suit could impact creditor recovery or
the implementation of the confirmed plan.

Cytomedix insists that the outcome of the case will affect creditor recovery, or at least could
have at the time the case was filed. It points out that the patents at issue were identified during
bankruptcy as its most significant assets. Further, it argues that its Disclosure Statement filed in the
bankruptcy case specifically identified PPAI as a potential defendant in an infringement suit and
expressly reserved its right to “pursue actions against any [p]ersons who at any time ... infringed [its]
[iJntellectual [p]roperty [a]ssets.” See Pl’s Ex 4 at 13-14, Appendix F. But Cytomedix neglects to

mention that its patent infringement suits, including its case against PPAI, were assigned no value in its


B. Individual Defendants’ Motions

1. Personal Jurisdiction and Venue

The individual defendants have moved to dismiss based on lack of personal jurisdiction and
improper venue. They argue that they live in Florida, the allegedly infringing activity took place in
Florida, and they have no personal or economic contacts with Illinois. It is Cytomedix’s burden to
establish personal jurisdiction. Saylor v. Dyniewski, 836 F.2d 341, 342 (7" Cir. 1988). Under
Illinois law, which applies here, it must demonstrate some basis of general or specific jurisdiction over
the defendants pursuant to 735 ILCS $/2-209. See John Walker & Sons v. DeMert & Dougherty
Inc., 821 F.2d 399, 401 (7" Cir. 1987). Cytomedix has made no attempt to discharge this burden.
Rather, it rests entirely on its assertion of bankruptcy jurisdiction, relying on the nationwide service of
process afforded by 28 U.S.C. § 1334 and Federal Rule of Bankruptcy Procedure 7004(d).? Because
we have determined that bankruptcy jurisdiction is inappropriate and that the case arises under the
patent laws, Cytomedix must demonstrate some other basis to exercise personal jurisdiction over the
individual defendants. It has failed to do so. The claims against the individual defendants are therefore
dismissed. Defendants’ motion to dismiss for lack of proper venue is denied as moot.

2. Failure to State a Claim

The individual defendants also move to dismiss the patent infringement allegations against them

for failure to state a claim. Because personal jurisdiction is lacking, this motion is denied as moot.

2 E.R.B.P. 7004(d) applies to adversary proceedings and provides that “[t]he summons and complaint and
all other process excpet a subpoena may be served anywhere in the United States.”

8



Minue Order Form (06/97)

United States District Court, Northern District of Hlinois

Matthew F. Kennelly

Sitting Judge if Other
than Assigned Judge

CASE NUMBER

02 C 4776

DATE

1/28/2003

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

OOFRCP4(m) OLocal Rule 41.1 COFRCP4I(a\(1) OM FRCP41(a)(2).

(10) WE [Other docket entry]

on or before 2/18/03.

(dl)

[For further detail see order attached to the original minute order.}

CASE Cytomedix, Inc. vs. Perfusion Partners
TITLE
[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
DOCKET ENTRY:
(1) Qa Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due
(3) ia] Answer brief to motion due___. Reply to answer brief due__
(4) oO Ruling/Hearing on setfor at
(5) oO Status hearing[held/continued to] [set for/re-set for] on setfor —_at _
(6) a Pretrial conference[held/continued to} [set for/re-set for] on set for at =
(7) im) Trial{set for/re-set for] on __at
(8) a) [Bench/Jury trial] [Hearing] held/continued to at
o

For the reasons set forth on the attached order, the Court grants PPAI’s motion
to reformulate jurisdiction (7-1) and individual defendants Smith, Buzenius and Pennie’s motion to
dismiss for lack of personal jurisdiction (8-1). The motions are otherwise denied. Florida Platelet Gel
Symposium’s motion to dismiss (9-1) is terminated as moot. PPAI is directed to answer the complaint

No notices required, advised in open court

No notices required.

number of notices

Document
Number

Notices mailed by judge's staff.

FEB = 3 2003

Notified counsel by telephone. date dockeied

v Docketing to mail notices.

Mail AO 450 form, docketng deputy ints

Copy to judge/magistrate judge.

date mailed notice
courtroom

OR deputy’s
initials a :

© Bateitime received in
central Clerk's Office

railing deputy invals

are}

Wa kent



Larami Limted v. Yes! Entertainment Corp., 244 B.R. 56, 60 (D.N.J. 2000) (“related to”

jurisdiction over patent infringement suit against debtor appropriate during ongoing Chapter 11
proceedings) provides support for its argument. Moreover, the Seventh Circuit has rejected the Pacor
analysis applied in these cases, settling on a more limited definition of “related to” jurisdiction. See
FedPak, 80 F.3d at 213 (rejecting “sweeping test” adopted in Pacor, Inc. v. Higgins, 743 F.2d 984,
994 (3" Cir. 1984) (holding that “related to” jurisdiction exists whenever a proceeding could
conceivably have any effect on the bankruptcy estate)).

Cytomedix points out that in confirming its reorganization plan, the bankruptcy court reserved
jurisdiction over disputes involving property of the estate. See Pl’s Ex 3 at 40-42. It relies heavily on
the bankruptcy court’s decision to exercise that jurisdiction in a similar infringement action filed against
defendant PPAI’s customer, LB Hyperbarics. See Pl’s Ex A; Transcript of Proceedings before Judge
Wedoff. But a bankruptcy court’s power to reserve jurisdiction over controversies involving the debtor
or the property of the bankruptcy estate is no broader than its power to exercise “related to”
jurisdiction under 28 U.S.C. §157(a). See Zerand-Bernal Group, Inc., 23 F.3d at 163-64, In the
Hyperbarics case, the bankruptcy court decided that “related to” jurisdiction was appropriate. See Pl’s
Ex A at 10-11. As our analysis indicates, we disagree. This is a patent infringement case wholly
unrelated to Cytomedix’s bankruptcy. The only interests at stake are those of the reorganized debtor
and the defendants, none of which have a claim against the bankruptcy estate. The Court will retain

jurisdiction over the case as an action arising under the patent laws, pursuant to 28 U.S.C. §§1338(a).


We note, however, that it is proper to look beyond the jurisdictional allegations in the complaint and
view whatever evidence has been submitted to determine whether subject matter jurisdiction exists.
Roman y. U.S. Postal Service, 821 F.2d 382, 385 (7" Cir. 1987) (citing Grafon Corp. v.
Hausermann, 602 F.2é 781, 782 (7" Cir. 1979). We will address the issue of bankruptcy jurisdiction
first.
A. “Related To” Jurisdiction Under 28 U.S.C. §§ 157(a) and 1334(b)

Cytomedix alleges that the Court has jurisdiction over this “adversary proceeding” pursuant to
28 U.S.C. §1334(b) as “a civil proceeding arising in or related to a case under title 11 of the United
States Code.” Complaint 3. In support of this assertion, Cytomedix states that “[a]t the time of filing
of this Complaint,” it was “a chapter 11 debtor operating as debtor-in possession under the jurisdiction
of the Bankruptcy Court.” Jd. Defendants argue that the case is simply a patent suit, the outcome of
which will have no impact on the implementation of Cytomedix’s bankruptcy reorganization. They
point out that the reorganization plan, which excluded potential recoveries in patent infringement suits
from the pool of assets available for distribution to creditors, had already been confirmed at the time
this suit was commenced, and they contend that Cytomedix’s status as debtor-in-possession when it
filed its complaint is an irrelevant technicality.

“Related to” jurisdiction exists only when the dispute “affects the amount of property available
for distribution or the allocation of property among creditors.” Jn re Xonics, Inc., 813 F.2d 127, 131
(7* Cir. 1987). Because of the timing of this suit, and because the evidence before the Court shows
that the outcome of the case will not impact the distribution or allocation of property in Cytomedix’s

reorganization plan, we find that “related to” jurisdiction is lacking.


wounds, Complaint 5, 13. It holds domestic and foreign patents relating to the use of a particular
wound therapy composition known as “Autologel.” Complaint 414. The company has recently
emerged from bankruptcy. Defendant PPAI is a small healthcare provider in Florida. PPAI’s Mot. to
Dismiss at 1. Defendants Smith, Buzenius and Pennie are PPAI employees. Individual Defendants’
Mot. to Dismiss at 1-2. The complaint alleges that PPAI and its employees have infringed upon
Cytomedix’s patents and have violated the Lanham Act by “making and using autologous cellular
therapies and platelet gel products.” Complaint 5-6.

The motions to dismiss currently before the court, however, do not concern the details of
Cytomedix’s claims. Rather, defendants challenge the basis of this Court’s jurisdiction over the case as
alleged in the complaint. Instead of asserting patent law jurisdiction over its infringement and unfair
competition claims, Cytomedix has characterized its suit as an adversary proceeding “related to” its
federal bankruptcy case. Complaint 43. Defendants dispute this characterization and urge the Court
either to dismiss the case or to reformulate jurisdiction under the patent laws. A disinterested observer
might wonder why it matters; we have jurisdiction over the case either way. The answer is simple:
identification of the basis for our jurisdiction determines whether the Court has personal jurisdiction
over the original defendants, who have moved to dismiss for lack of personal jurisdiction, improper
venue, and failure to state a claim.

DISCUSSION

As we consider defendants’ 12(b) motions, we accept as true all well-pleaded allegations of the

complaint and construe all ambiguities in favor of Cytomedix. Hishon v. King & Spaulding, 467 U.S.

69, 73 (1984); Thompson v. Illinois Dep’t of Prof’l Regulation, 300 F.3d 750, 753 (7" Cir. 2002).


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

EASTERN DIVISION
CYTOMEDIKX, INC., ) Den, y ER
) FEB og
Plaintiff, ) 2003
)
vs, ) Case No. 02 C 4776
)
PERFUSION PARTNERS & )
ASSOCIATES, INC,, a Florida )
corporation, FLORIDA PLATELET )
GEL SYMPOSIUM, a Florida corporation, )
EMERY SMITH, DAVID BUZENIUS, )
PATRICK PENNIE, and LISA COLAS )
)
Defendant. )

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

Plaintiff Cytomedix has sued Perfusion Partners & Associates Inc. (PPAI), and three
individually named PPAI employees, Emery Smith, David Buzenius, and Patrick Pennie for patent
infringement and Lanham Act violations.! Defendants have moved to dismiss for lack of jurisdiction
and for failure to state a claim.

FACTUAL BACKGROUND

Cytomedix is in the business of developing, licensing, and distributing “autologous cellular

therapies” using medical patients’ own platelets and blood components for the treatment of chronic

| The Complaint also names Florida Platelet Gel Symposium and Lisa Colas as defendants, but the claims
against these parties have been voluntarily dismissed. See Order of Dec. 20, 2002.

\4