MG Design Associates, Corp. v. CoStar Realty Information, Inc.
Docket: No. 16 C 5166
Court: District Court, N.D. Illinois; July 19, 2017; Federal District Court
Plaintiff MG Design Associates, Corp. initially engaged in a contract to design and build a tradeshow exhibit for the CoStar Defendants—CoStar Realty Information, Inc. and Apartments, LLC. After MG completed the design, the CoStar Defendants redirected the project to Northwind Enterprises, Inc. d/b/a Atlantic Exhibits. Following a prior dismissal of MG's suit, the Court allowed MG to file a First Amended Complaint, which includes claims of breach of contract, fraudulent misrepresentation, and tortious interference. The Court partially grants and denies the CoStar Defendants' motion, dismissing one claim due to lack of personal jurisdiction while allowing others to proceed based on sufficient allegations. The Court confirms personal jurisdiction over Atlantic, as it recognizes a contract and business relationship between MG and the CoStar Defendants known to Atlantic. All defendants are required to respond to the First Amended Complaint by August 18, 2017.
MG, an Illinois corporation, had previously done work for Apartments.com before CoStar acquired its assets in 2014. CoStar is a Delaware corporation with operations in Illinois and Washington, D.C. Apartments, formed by CoStar, is a Delaware LLC. Although Apartments' main office is claimed to be in Chicago, key executives manage operations from Washington, D.C. The majority of departmental functions were moved to Atlanta in early 2016. The initial engagement with MG occurred in April 2015 when a CoStar employee contacted MG to design an exhibit for a Las Vegas conference, indicating that MG would handle all phases of the project.
The agreement between the parties was not documented in writing, leading to disputes regarding the origin of Patenaude’s call to MG. Evidence indicates that Patenaude claimed to have called MG from her Chicago office on or before April 28, 2015, while the CoStar Defendants argued she was still in Texas when she first contacted MG between April 22 and 25, 2015. Patenaude visited MG’s Pleasant Prairie office on April 27, 2015, where she became MG’s primary contact during the exhibit's design phase, favoring in-person discussions due to the proximity of the office. Key design discussions took place in Wisconsin, where she contributed ideas and suggestions.
On May 4, 2015, Patenaude returned to MG’s office to review and request changes to the initial design renderings, which MG produced on May 7, 2015. Changes were requested by CoStar on May 8, and MG revised the designs, emailing the final version to Patenaude on May 11, 2015. However, during the week of May 11, Klionsky informed Patenaude that CoStar would be terminating its relationship with MG and that she would no longer be involved with the Las Vegas conference exhibit. On May 13, CoStar officially notified MG of this termination.
Subsequently, MG sent an invoice to Patenaude, asserting that the Design Renderings were proprietary and could not be reproduced without MG's approval. CoStar paid MG $16,500 for the design work, and Atlantic utilized these Design Renderings to construct the Las Vegas exhibit, claiming credit on its website. The Design Renderings included a notice asserting MG's creative ownership, and MG did not receive any requests for their use.
The excerpt also outlines legal standards for a motion to dismiss under Rule 12(b)(2), which addresses jurisdiction. The burden of proof lies with the party asserting jurisdiction, allowing the court to consider affidavits and evidence. If a hearing is not held, the plaintiff needs to only establish a prima facie case of jurisdiction, with the court interpreting the complaint in a manner favorable to the plaintiff. However, once the defendant counters with opposing evidence, the plaintiff must provide affirmative proof to support jurisdiction claims, with factual disputes resolved in the plaintiff's favor. Additionally, a motion to dismiss under Rule 12(b)(6) addresses the complaint's sufficiency rather than its merits.
In evaluating a Rule 12(b)(6) motion to dismiss, the Court accepts all well-pleaded facts in the plaintiff's complaint as true and makes reasonable inferences in the plaintiff's favor. To withstand dismissal, the complaint must provide the defendant with fair notice of the claim and be facially plausible, meaning it must contain factual content that allows for a reasonable inference of the defendant's liability. Additionally, Rule 9(b) mandates that fraud allegations be stated with particularity, requiring specific details regarding the 'who, what, when, where, and how' of the fraud, though the level of detail may vary based on the case's specifics. This rule applies to all fraud-related claims, including those based on fraudulent conduct.
The Court is also addressing challenges to its personal jurisdiction over the defendants. The CoStar Defendants seek reconsideration of an earlier ruling affirming personal jurisdiction, while Atlantic seeks dismissal for lack of it. The plaintiff, MG, opposes these motions, prompting the Court to assess whether personal jurisdiction can be reviewed and what standard applies. Courts have established that when a plaintiff amends their complaint and introduces new allegations, the issue of personal jurisdiction can be revisited, as this amendment can provide additional facts. Since a ruling on personal jurisdiction is considered interlocutory, it is subject to reconsideration.
MG has filed an amended complaint that supersedes previous pleadings and introduces new claims and factual allegations. The Court acknowledges that defendants are entitled to a fresh assessment when a complaint is amended. MG asserts that the Court can exercise general jurisdiction, even if previously not emphasized. The Court finds no issue with Rule 12(g)(2), which requires consolidation of dismissal arguments, noting that there is no piecemeal litigation involved in the sequence of defenses raised by the defendants. Following the dismissal of MG’s original complaint without prejudice, the First Amended Complaint will be analyzed under personal jurisdiction for the first time.
The Court permits a review of personal jurisdiction under the motion to dismiss standard, despite differing opinions from the parties involved. MG, CoStar, and Apartments seek a reconsideration of the prior order on personal jurisdiction, while Atlantic prefers a review based on the motion to dismiss standard. Some courts have applied the motion for reconsideration standard after denying an initial Rule 12(b)(2) motion, viewing subsequent challenges as reconsideration due to the prohibition on successive Rule 12(b)(2) motions. Other courts have opted for the motion to dismiss standard when addressing a defendant's renewed challenge following an amended complaint. The Court concludes that the appropriate standard for reviewing personal jurisdiction is the motion to dismiss standard, finding that the Federal Rules of Civil Procedure do not prevent a Rule 12(b)(2) motion in this instance. The First Amended Complaint resets the procedural landscape, allowing Defendants to introduce new arguments. Additionally, the amended complaint introduces new facts and claims that were not considered in the earlier ruling, necessitating a fresh analysis of personal jurisdiction, particularly as the original ruling inadequately addressed state law claims. Practicality and judicial efficiency further support a complete review rather than merely reconsidering the prior decision, especially since Atlantic declined to participate in a reconsideration process.
In diversity cases, personal jurisdiction over a defendant is contingent upon its appropriateness in an Illinois court, which allows jurisdiction to the fullest extent permitted by both Illinois and U.S. Constitutions. While Illinois constitutional standards may be stricter than federal ones, both focus on the fairness and reasonableness of exercising jurisdiction. To comply with the Due Process Clause, a defendant must have minimum contacts with the forum state, enabling them to reasonably anticipate being brought to court there. General jurisdiction over foreign corporations may be established if their affiliations with the state are so continuous and systematic that they are considered "at home" there. The threshold for establishing general jurisdiction is high, requiring substantial contacts that approximate physical presence. Corporations are typically deemed "at home" only in their principal place of business and state of incorporation.
In exceptional cases, a corporation's significant operations in a different forum may establish general jurisdiction in that state. MG contends that the Court can assert general jurisdiction over the CoStar Defendants, which include CoStar, a Delaware corporation headquartered in Washington, D.C., and Apartments, a Delaware limited liability company wholly owned by CoStar during the relevant period. General jurisdiction can be established if a corporation has continuous and systematic affiliations making it essentially "at home" in Illinois.
MG claims Apartments has its primary office in Illinois, but fails to provide evidence against the assertion that its corporate governance was centralized in Washington, D.C. CoStar's associate general counsel affirmed that its principal place of business is Washington, D.C. The CoStar Defendants argue against general jurisdiction, citing the Supreme Court's nerve center test, which identifies the principal place of business based on where corporate officers direct operations.
MG argues that the CoStar Defendants are at home in Illinois due to their physical offices, business registration, and key employees located there. Notably, CoStar has a physical office and is registered in Illinois, and a key employee, Patenaude, operated from Illinois. However, Patenaude's role was limited, and CoStar's overall operations were managed from Washington, D.C. Moreover, mere registration in Illinois does not suffice for establishing general jurisdiction.
The Court finds insufficient evidence to assert general jurisdiction over CoStar. However, the situation with Apartments is more complex, as its president was based in Illinois until 2016, it maintained its primary office there until relocating operations to Georgia, and it is registered to do business in Illinois. These factors suggest potential general jurisdiction. Importantly, after Apartments was formed to take over the business from Classified Ventures, its operations were shifted to Washington, D.C., and by January 2016, most of its functions and its president had moved to Georgia, prior to the filing of this lawsuit.
Chicago was not the selected home for Apartments, which initially operated in Illinois to absorb the Apartments.com business but ultimately controlled its operations from Washington, D.C., and moved most activities to Georgia. Although Apartments has some presence in Illinois and is registered to do business there, it did not have sufficient contacts at the time of this suit to warrant general jurisdiction. Specific jurisdiction, which requires an affiliation between the forum and the controversy, was evaluated based on the defendant’s purposeful activities directed at the forum state. The case involves allegations of breach of contract by the CoStar Defendants against MG, focusing solely on interactions related to the disputed contract.
MG claims that an oral contract for designing and building an Apartments.com exhibit at a Las Vegas trade show was breached. Disputes exist regarding where the contract was negotiated, with MG asserting it occurred in Illinois and the CoStar Defendants claiming it was in Texas. Despite the disagreement, evidence suggests that Patenaude, who worked in Illinois, played a significant role in the negotiations. The Court infers that the CoStar Defendants’ Illinois operations were involved in creating the oral contract, and Patenaude’s established relationship with MG, stemming from her Illinois office, contributed to her outreach for the project. The Court considers prior negotiations, future implications, and the parties' dealings as indicative of purposeful availment, making jurisdiction in Illinois foreseeable.
Furthermore, the Court determines that MG has established a prima facie case that its breach of contract claim is connected to the CoStar Defendants’ activities in Illinois. The presence of CoStar personnel in Illinois relating to the alleged breach supports the conclusion that exercising personal jurisdiction aligns with fair play and justice principles.
MG asserts that the CoStar Defendants violated a written contract regarding the use of Design Renderings, claiming they had agreed not to reproduce the work without permission. MG sent an invoice to Patenaude in Illinois, but subsequent actions related to the alleged breach occurred outside of Illinois, as Patenaude was informed she would no longer oversee tradeshow matters. While the CoStar Defendants may have established minimum contacts with Illinois, MG's breach of contract claim does not arise from those contacts. The First Amended Complaint clarifies that MG initiated the contract by sending the invoice, rendering prior negotiations irrelevant to this claim. The Court finds it cannot exercise specific jurisdiction over the breach of contract claim and dismisses it without prejudice.
Additionally, MG accuses the CoStar Defendants of fraudulent misrepresentation regarding their role in a Las Vegas exhibit. Although CoStar's employee directed the communication from Texas, MG provides sufficient evidence to suggest activities aimed at Illinois. This establishes a prima facie case for specific jurisdiction over the fraudulent misrepresentation claim, which aligns with fair play and justice principles. Lastly, MG claims that Atlantic interfered with its contractual relationship with the CoStar Defendants, although Atlantic contends there is no link to Illinois regarding these claims.
The Court previously determined that MG accused Atlantic of interfering with its contracts and business relationships by misappropriating MG's intellectual property, which is associated with Illinois due to MG’s incorporation there. The First Amended Complaint introduces specific allegations that Atlantic, a Virginia competitor, unlawfully interfered with MG's expected business dealings with CoStar Defendants related to Illinois-based trade shows. Specifically, MG claims Atlantic took its design (created in Wisconsin), reproduced it in Virginia and Nevada, and falsely advertised it as Atlantic's creation.
The Court notes that personal jurisdiction cannot be established solely based on MG's incorporation in Illinois; rather, there must be a sufficient connection between Atlantic's actions and the forum state. Despite Atlantic's argument that personal jurisdiction is lacking because MG does not assert copyright infringement, the Court finds that MG's allegations of tortious interference remain valid. MG asserts that Atlantic's actions disrupted business relations with the CoStar Defendants, which directly involved Illinois operations, and tarnished MG's reputation and goodwill in Illinois.
The Court concludes that it can exercise specific jurisdiction over Atlantic, as MG's claims are rooted in Atlantic's interference with contracts tied to Illinois, regardless of the copyright issue. The exercise of jurisdiction is also deemed consistent with principles of fair play and substantial justice, affirming that a holder of intellectual property should not be compelled to pursue claims in the jurisdiction of those who unlawfully exploit their property.
The court has determined that MG has sufficiently established grounds for asserting personal jurisdiction over Atlantic regarding tortious interference claims. Consequently, the court partially grants and partially denies the defendants’ motions concerning personal jurisdiction, specifically dismissing Count II, which involves a breach of written contract claim against the CoStar Defendants due to a lack of personal jurisdiction.
In addressing the motion to dismiss MG's state law claims for failure to state a claim, the court applies Illinois substantive law, given that the parties did not raise any choice of law issues. In Count I, MG alleges that the CoStar Defendants breached an oral agreement to design and build an exhibit for a tradeshow in Las Vegas. Under Illinois law, a claim for breach of contract requires the existence of a valid contract, substantial performance by the plaintiff, a breach by the defendant, and resulting damages.
The CoStar Defendants contend that MG's claim is deficient because it lacks specificity regarding the oral agreement's terms. However, Illinois law allows for the enforcement of contracts even with missing terms, as long as essential terms are not so uncertain that performance cannot be determined. MG asserts that the oral contract encompassed all necessary work for the exhibit's design and construction. The CoStar Defendants argue that due to the custom nature of the exhibit, more specifics were required, which they claim can only be evaluated at the summary judgment stage. Nonetheless, MG's allegations are deemed sufficient to suggest a plausible claim that an agreement was reached regarding the essential aspects of the project.
Additionally, while the CoStar Defendants argue that MG failed to specify the price, MG claims it intended to charge standard rates and costs. Courts have found that customary rates can serve as adequate substitutes for unspecified price terms when there exists a common trade practice.
MG contends that Patenaude, having a longstanding relationship with MG from her prior employment with Classified Ventures, likely had knowledge of MG's standard rates and costs, suggesting a feasible method for price calculation. In contrast, the CoStar Defendants argue that an alleged oral contract is unenforceable under the UCC’s statute of frauds, which requires written agreements for goods priced at $500 or more. The statute applies to contracts predominantly for goods; in mixed contracts, the classification depends on the primary purpose. MG asserts that the contract involved designing and constructing a tradeshow exhibit, indicating that the design services were more significant than the construction, thus characterizing it primarily as a service contract. Consequently, the court declines to apply the UCC’s statute of frauds, denying the CoStar Defendants' motion to dismiss Count I.
In Count III, MG claims the CoStar Defendants engaged in fraudulent misrepresentation by misleading MG into performing design work urgently without upfront payment, with the understanding that payment would follow with subsequent work. To establish a claim for fraudulent misrepresentation, MG must demonstrate (1) a false statement of material fact, (2) the statement-maker's knowledge of its falsity, (3) intention to induce action, (4) reliance by the other party on the statement, and (5) resulting damages.
CoStar Defendants challenge the specificity of MG's allegations regarding fraudulent statements, asserting that Rule 9(b) necessitates detailed claims about the "who, what, where, and when" of fraud. MG alleges that Patenaude communicated intentions for MG to manage all phases of work for an exhibit, detailing specific claims about what services would be provided. Although the CoStar Defendants question the timing and mode of these communications, MG asserts that such discussions occurred across state lines and culminated in a visit to MG's Wisconsin office, where commitments were allegedly made.
The CoStar Defendants further argue that MG has not demonstrated any damages from reliance on these statements, asserting that MG must show out-of-pocket losses. MG claims it performed urgent work without upfront payment, expecting to invoice later for services rendered. Despite CoStar's payment for some work, MG contends that its expedited efforts led to a loss of time and resources due to reliance on the alleged misrepresentation. The court finds these allegations sufficient to deny the motion to dismiss Count III.
In Count IV, MG alleges that Atlantic tortiously interfered with its oral contract with CoStar. Under Illinois law, to establish this claim, MG must prove the existence of a valid contract, the defendant's awareness of it, intentional inducement of a breach by the defendant, a resulting breach, and subsequent damages.
In Douglas v. Lofton, the court addressed claims made by MG against Atlantic regarding an oral contract and tortious interference with a business relationship. MG alleged the existence of an oral contract with the CoStar Defendants, asserting that Patenaude agreed to have MG design and build a trade show exhibit for payment. The court found that MG sufficiently outlined the terms of the contract, including offer, acceptance, and consideration. Atlantic's argument that the oral contract was barred by the statute of frauds was rejected, as the primary purpose was the design of the exhibit, which did not fall under the UCC’s statute of frauds. Consequently, the court denied Atlantic’s motion to dismiss Count IV related to the oral contract.
Regarding the tortious interference claim (Count V), MG claimed that Atlantic interfered with its expected business relationship with the CoStar Defendants. The elements of tortious interference in Illinois require that the claiming party had a reasonable expectation of a business relationship, the other party was aware of this expectation, the other party obstructed the relationship, and the claiming party suffered harm. MG asserted that its previous work and discussions with Patenaude led to a reasonable expectation of being hired for the exhibit, and that Atlantic, familiar with the industry practices, was aware of this expectation. The court found it plausible that Atlantic knew it was taking business that would have gone to MG when it engaged CoStar to build the exhibit using MG’s designs.
Atlantic also contended that its actions were protected by the “competitor’s privilege,” which allows lawful competition to interfere with prospective business relationships as long as the intent is business-related and not purely spiteful. However, the specifics of MG’s claims and the circumstances surrounding the alleged interference warranted further examination.
The competitor's privilege is recognized as an affirmative defense that does not need to be addressed in the plaintiff's initial complaint, as established in federal court precedents. Consequently, the Court denies Atlantic’s motion to dismiss the tortious interference claim in Count V. The Court's conclusion includes granting in part and denying in part the CoStar Defendants' motion for reconsideration and dismissal, while also dismissing Count II against them due to lack of personal jurisdiction. All defendants are required to respond to the First Amended Complaint by August 18, 2017. The Court assumes the facts in MG’s complaint as true for the purpose of resolving motions under Rule 12(b)(6). It references affidavits and materials beyond the First Amended Complaint to address personal jurisdiction under Rule 12(b)(2). The CoStar Defendants contest personal jurisdiction over MG's oral contract claim, asserting it was added later, which the Court cannot reconsider at this stage. MG claims that Atlantic is a Virginia corporation and does not establish a prima facie case for general jurisdiction over Atlantic. The parties agree to apply Illinois substantive law and discuss whether an invoice contract superseded the prior oral contract, a determination that will be made during discovery, while accepting MG's claims about the existence of the oral contract as true for now.
