Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ill.: Illinois proper forum for dispute involving Illinois property and escrow payment, (Feb 12, 2016)

By Michael Menzhuber, J.D., LL.M.

The federal district court in Chicago ruled that it had personal jurisdiction over non-resident defendants, in a breach of contract action involving the sale of Illinois land and deposits to an Illinois escrow holder, and that venue was proper (Smart Oil, LLC v. DW Mazel, LLC, February 10, 2016, Leinenweber, H.).

David Ebrahimzadeh, after several months of negotiations, entered into an agreement in June 2014 with Mehmood Syed, the president of Smart Oil, to purchase 25 of Smart Oil’s gas station properties located in Illinois on behalf of his company, DW Mazel LLC (DW). Ebrahimzadeh was a New York resident and DW was located in New York. Syed was an Illinois resident and Smart Oil had its principal place of business in Illinois.

In consideration of the conveyance of the 25 Illinois properties, the contract (June Contract) provided for an initial deposit of $250,000, followed by a transfer of $450,000, to Smart Oil’s Illinois-based escrow holder, FATICO. DW, transferred the $250,000 to Zwick Associates, its escrow holder in New York. The June Contract was subsequently voided for a technicality and redrawn contract (November Contract) was executed. The terms of November Contract were the same as the June Contract except that the number of properties to be purchased was increased to 30 and the initial deposit was increased to $300,000.

DW transferred the additional $50,000 to Zwick. However, Zwick never transferred any funds to Smart Oil’s escrow holder, FATICO. Smart Oil filed a breach of contract complaint against DW and Zwick, requesting the transfer of the $300,000 deposit, plus accrued interest, and damages. The defendants moved to dismiss for lack of personal jurisdiction and improper venue.

Personal jurisdiction. The court noted that a non-resident is subject to specific personal jurisdiction when its actions are purposefully directed toward the forum state so as to invoke the benefits of its laws. To determine purposeful availment in breach of contract cases, Illinois courts have looked to prior negotiations, the location of formation, and the location of performance.

The court determined that the defendants purposefully directed their actions to, and within, the state of Illinois because: (1) negotiations began when DW contacted Syed about the sale of Smart Oil’s land; (2) Ebrahimzadeh furthered these negotiations on a visit to Illinois; (3) the defendants were required to make payments to an Illinois escrow holder; and (4) the contracts concerned the sale of land in Illinois. Although the defendants urged that the June Contract be ignored as irrelevant, the court found that: (1) the June Contract, because of its similarities to the November Contract, was an ongoing commercial extension of the relationship between the parties; and (2) even if it was ignored, the November Contract to purchase 30 parcels of land in Illinois was a purposeful availment of the laws of Illinois.

Venue. The defendants argued that the Northern District of Illinois was an improper venue because the majority of the negotiations for the November Contract occurred in New York and the $300,000 escrow funds originated with, and remained in, a New York bank. The court, however, noted that the escrow funds were supposed to have been deposited with Smart Oil’s escrow holder in Illinois and it was the failure of the defendants to do so that was the basis for the breach of contract claim.

The case is No. 15 C 8146.

Attorneys: Jeffrey E. Crane (Law Office of Jeffrey E. Crane, LLC) for Smart Oil, LLC. Edward F. Ruberry (Ruberry, Stalmack & Garvey) for DW Mazel, LLC and Jeffrey Zwick & Associates.

Companies: Smart Oil, LLC; DW Mazel, LLC; Jeffrey Zwick & Associates

Cases: FranchisingDistribution IllinoisNews