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Dissolved Air Floatation Corp. v. Kothari

United States District Court, E.D. Wisconsin

September 26, 2016

DISSOLVED AIR FLOATATION CORPORATION and ACCURATE MECHANICAL CONTRACTORS, INC. Plaintiffs,
v.
BHARAT KOTHARI, RUDY PETERS, RICHARD V.L. COOPER and DAF TECHNOLOGY, LLC Defendants.

          DECISION AND ORDER

          William C. Griesbach, Chief Judge

         The Defendants have filed motions to dismiss, raising arguments including failure to state a claim and lack of subject matter and personal jurisdiction. For the reasons set forth below, I conclude the court lacks personal jurisdiction over Defendant Cooper. I further conclude that dismissal is warranted as to any claims against Defendants Peters and Kothari that are based on an alter ego theory.

         I. Background

         According to the second amended complaint, Dissolved Air Floatation Corporation was a Wisconsin company based in Kaukauna, Wisconsin. Its owner had been approached about selling the business, and eventually it began negotiations with the Defendants, whom the complaint describes as Illinois businessmen, to sell the company. In anticipation of the sale, the Defendants created DAF Technology, LLC, a Nevada limited liability company that would eventually be the vehicle for purchasing the company. Some negotiations occurred in Kaukauna and eventually an asset purchase agreement was entered into. The parties met for what they describe as a “dry closing” that occurred in Chicago on February 2, 2012. The complaint describes Defendant Cooper as the “spokesperson” for the LLC, although the other individual Defendants were also present at the closing. (ECF No. 44 at ¶¶ 17-23.)

         The closing was described as “dry” because although agreements were signed, no money changed hands. This was a result of the Defendants' funds being held up (they said) by the federal government because the money had come from out of the country. Since the closing, the complaint alleges that various of the Defendants have continued to string the Plaintiffs along, promising that the money will soon be provided, but the purchase price of $2 million has never been paid. In addition to the asset purchase agreement, the parties signed a lease whereby DAF Technology, LLC would lease commercial property in Kaukauana for the remainder of 2012 at a monthly rent of $6, 500. (Id. at ¶ 46.) DAF Technology, LLC has not performed under the lease. The complaint seeks damages under theories of breach of contract and promissory estoppel, as well as other state law claims. It also seeks to hold the individual defendants personally liable for the actions of DAF Technology, LLC.

         II. Analysis

         The Defendants move under Fed.R.Civ.P. 12(b)(1) (lack of subject matter jurisdiction) and 12(b)(6) (failure to state a claim upon which relief may be granted). Defendant Cooper has also moved to dismiss under Rule 12(b)(2), alleging an absence of personal jurisdiction. Because it impacts this court's jurisdiction to hear the dispute, I will address the Rule 12(b)(1) argument first.

         A. Cooper's Motion to Dismiss

         1. Ripeness / Arbitration Agreement

         Defendant Cooper first argues that the case must be dismissed on ripeness grounds. He argues that the asset purchase agreement underlying this dispute contains a provision requiring any disputes to be subject to binding arbitration. Because arbitration has not occurred, he argues the matter is not yet ripe.

         Ripeness is a justiciability doctrine designed to prevent courts from deciding potential disputes that have not yet crystallized into concrete injuries. The doctrine of ripeness, like other Article III doctrines, is “an idea ... about the constitutional and prudential limits to the powers of an unelected, unrepresentative judiciary.” Allen v. Wright, 468 U.S. 737, 750 (1984) (citation omitted) Wisconsin Cent., Ltd. v. Shannon, 539 F.3d 751, 759 (7th Cir.2008) (“Ripeness is predicated on the ‘central perception ... that courts should not render decisions absent a genuine need to resolve a real dispute.' ”) (citations omitted). Ripeness is ultimately a question of timing. Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 538 (7th Cir. 2006).

         Normally a party seeking to enforce an arbitration agreement moves to compel arbitration under the Federal Arbitration Act, which provides: “A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28 ... of the subject matter of a suit arising out of the controversy between the parties ...” 9 U.S.C. § 4. None of the parties has moved to compel arbitration. Instead, Cooper argues that this case is unripe because arbitration has not yet occurred. But even if an arbitration clause governed this dispute, that does not mean that any controversy between the parties is merely “abstract” or unripe. In short, the Plaintiffs allege the breach of an asset purchase agreement and a lease, both of which are claims based on past conduct that has crystallized into concrete legal claims. Moreover, an arbitration clause does not affect subject matter jurisdiction because parties may always waive a contractual right to arbitrate. St. Mary's Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., Inc., 969 F.2d 585, 587 (7th Cir.1992). Cooper has not cited any authority for the principle that an arbitration clause would render a dispute unripe. The motion to dismiss on ripeness grounds will therefore be denied.

         2. Personal Jurisdiction

         Cooper also alleges that this court lacks personal jurisdiction over him. For a court to exercise personal jurisdiction consistent with due process, the defendant must have sufficient contacts with the forum state “such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” International Shoe Co. v. Washington,326 U.S. 310, 316 (1945). Personal jurisdiction may be either “general” or “specific.” Goodyear Dunlop Tires Operations, S.A. v. Brown,564 U.S. 915, 919 (2011).[1] Here, the focus is on specific jurisdiction, because the Plaintiffs do not allege Cooper has continuous or systematic contacts with Wisconsin. A court has specific jurisdiction over a nonresident defendant when “a controversy is related to or ‘arises out of' a defendant's contacts with the forum.” Helicopteros Nacionales de Colombia, S.A. v. Hall,466 U.S. 408, 414 (1984) (citation omitted). The contacts relevant to specific jurisdiction are those contacts with the forum state that are both related to the lawsuit and created by the defendant. Walden v. Fiore,134 S.Ct. 1115, 1121-22 (2014). Specific jurisdiction is appropriate where (1) the defendant “purposefully availed himself of the privilege of conducting business in the forum state or ...


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