3DGS, LLC v. Chai Tr. Co.

3DGS, LLC, Plaintiff, v. CHAI TRUST COMPANY, LLC, et al., Defendants.

No. 19 CV 7524

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

December 15, 2020

Judge Manish S. Shah

MEMORANDUM OPINION AND ORDER

Defendant Par Hawaii Refining, LLC twice outbid plaintiff 3DGS, LLC to win contracts with the federal government set aside for small businesses. Although Par Hawaii certified that it was an eligible business, the Small Business Administration later found Par Hawaii ineligible. 3DGS alleges that Par Hawaii, its owner, defendant Par Pacific Holdings, Inc., and Par Pacific's largest shareholder, defendant Chai Trust Company, LLC, conspired to submit fraudulent self-certifications to the government, harming 3DGS—a legitimate small business—by causing it to lose out on the contracts. 3DGS brings a RICO claim and state-law tort claims against the three companies and anonymous Doe defendants. The Par defendants move to dismiss for lack of personal jurisdiction and improper venue, and both sets of defendants move to dismiss for failure to state a claim. For the reasons discussed below, defendants' motions are granted.

I. Legal Standards

Federal Rule of Civil Procedure 12(b)(2) governs dismissals based on lack of personal jurisdiction. In a case with federal-question jurisdiction, a federal court has personal jurisdiction over the defendant if federal law authorizes service of process, regardless of whether a state court could exercise personal jurisdiction over the defendant. Curry v. Revolution Labs., LLC, 949 F.3d 385, 393 (7th Cir. 2020); Waeltz v. Delta Pilots Ret. Plan, 301 F.3d 804, 807 n.3 (7th Cir. 2002); see Fed. R. Civ. P. 4(k)(1)(C). The defendant need only have minimum contacts with the United States as a whole such that the court's exercise of personal jurisdiction would not violate the Due Process Clause of the Fifth Amendment. Waeltz, 301 F.3d at 807 n.3. When a defendant moves to dismiss based on personal jurisdiction, the plaintiff bears the burden of establishing a prima facie case of jurisdiction. John Crane, Inc. v. Shein Law Ctr., Ltd., 891 F.3d 692, 695 (7th Cir. 2018); Brook v. McCormley, 873 F.3d 549, 551-52. (7th Cir. 2017).

In evaluating a Rule 12(b)(3) motion to dismiss for improper venue, I take all allegations in the complaint as true and draw all inferences in favor of the plaintiff. Deb v. SIRVA, Inc., 832 F.3d 800, 808 (7th Cir. 2016); Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 806 (7th Cir. 2011). The plaintiff bears the burden of establishing proper venue. Grantham v. Challenge-Cook Bros., 420 F.2d 1182, 1184 (7th Cir. 1969).

To survive a motion to dismiss under Rule 12(b)(6), a complaint must state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). The complaint mustcontain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In reviewing a motion to dismiss, I construe all factual allegations as true and draw all reasonable inferences in the plaintiff's favor. Sloan v. Am. Brain Tumor Ass'n, 901 F.3d 891, 893 (7th Cir. 2018).

II. Facts

Par Pacific Holdings, Inc. was a publicly traded corporation with more than 150 institutional investors. [35] ¶¶ 9, 13.¹ Par Pacific owned Par Hawaii Refining, LLC. [35] ¶ 9, 12. Chai Trust Company, LLC was Par Pacific's largest shareholder. [35] ¶¶ 8, 14. As of June 2018, Chai Trust owned 28.44 percent of Par Pacific. [35] ¶ 15. The next largest shareholder owned 8.52 percent of the company. [35] ¶ 15.

Chai Trust administered trusts established for the family of billionaire Sam Zell. [35] ¶ 18. Zell was the founder and chairman of Equity Group Investments, a division of Chai Trust that provided investment management services. [35] ¶ 19. Chai Trust was registered with the Illinois Secretary of State as Equity Group Investments and operated under the name EGI. [35] ¶¶ 20, 23. The president of EGI was also on the board of EGI investment companies and the Senior Managing Director of Chai Trust. [35] ¶¶ 21-22.

In 2001, EGI, made a debt investment in Delta Petroleum and stewarded the company through bankruptcy. [35] ¶ 25. Delta Petroleum later changed its name toPar Pacific. [35] ¶ 26. EGI helped build Par Pacific's management team and develop its acquisition strategy, and Chai Trust placed its agents and associates in positions of power within Par Pacific. [35] ¶¶ 27-28. In 2015, a senior investment manager and Co-President at EGI was appointed President and CEO of Par Pacific. [35] ¶¶ 30-31. The Vice-President of EGI from 2008 until 2013 held various positions at Par Pacific beginning in 2012: Director, CEO, Vice President of Mergers and Acquisitions, and CFO. [35] ¶¶ 32-33. An advisor for EGI was also the Chairman of the Board of Par Pacific. [35] ¶ 34. And the CEO and President of Mid Pac Petroleum, LLC became president of Par Hawaii when Par Pacific acquired the company. [35] ¶ 35.

On four different occasions between 2016 and 2018, Par Pacific's Director of Corporate Procurement certified to the System for Award Management that Par Hawaii was a small business engaged in petroleum refining with a size of 1,500 employees. [35] ¶¶ 36-40. Plaintiff alleges that before submitting those certifications, several executives at Chai Trust and Par Pacific agreed to represent Par Hawaii as a small business, knowing that Par Hawaii did not qualify as a small business. [35] ¶ 41.

In January 2017, the Defense Logistics Agency, Energy Section issued a request for proposals for a one-year contract to provide bulk petroleum. [35] ¶¶ 42-43. The RFP was set aside for a partial small business. [35] ¶ 44. To qualify as a small business, the company had to have either 1,500 employees or the capacity for 200,000 barrels per day of crude oil; be a for-profit business; be independently owned and operated; not be nationally dominant in its field; be physically located and operatedin a specific area; and make a significant contribution to the U.S. economy through taxes or use of American products, material, or labor. [35] ¶¶ 44, 46.

In February 2017, both 3DGS and Par Hawaii submitted offers to the Agency; both parties' submissions included certifications that the company was an eligible small business. [35] ¶ 47. The Agency deemed both parties' proposals acceptable, which opened up the pricing portion of the bid. [35] ¶ 50. All offerors could see the best price during that round, and any offeror could match the offer or beat it. [35] ¶ 50. 3DGS beat the best overall price in the second round, but Par Hawaii beat 3DGS's price in the third round, and Par Hawaii won the contract. [35] ¶¶ 51-52, 54. 3DGS did not have an opportunity to match or beat Par Hawaii's final offer, and no other offer was within competitive range. [35] ¶ 53. A few months later, the contracting officer told 3DGS that it had been the second lowest bidder and was otherwise eligible for the contract. [35] ¶ 55.

In January 2018, the Agency issued another request for proposals for a one-year contract for a small business. [35] ¶¶ 56-58. Again both 3DGS and Par Hawaii submitted offers, and both companies certified that they were eligible small businesses. [35] ¶ 59. Par Hawaii won the contract, and again 3DGS was the second lowest bidder. [35] ¶¶ 61-66. As the lowest bidder and an eligible small business, 3DGS alleges it should have won both contracts. [35] ¶ 98.

In August 2018, 3DGS filed a size protest against Par Hawaii with the contracting officer, based on 3DGS's belief that Par Hawaii was too large to be considered an eligible small business. [35] ¶ 70. The contracting officer forwarded thecomplaint to the Small Business Administration Office of Government Contracting, and that office dismissed the protest as untimely. [35] ¶¶ 71-72.

Based on 3DGS's allegations, the Area Office filed its own size protest against Par Hawaii. [35] ¶ 73. Par Hawaii submitted documentation showing that its capacity was below 200,000 barrels and 1,500 employees. [35] ¶¶ 75-76. It also submitted an organizational chart showing that Par Pacific owned Par Hawaii. [35] ¶ 77. The Area Office requested ownership information for Par Pacific to make a proper size determination, and Par Hawaii represented that Par Pacific was a corporation with over 150 institutional investors collectively holding 68.73 percent of its outstanding shares of common stock. [35] ¶ 79. The Area Office requested additional information to make the size determination, but Par Hawaii continued to provide insufficient information. [35] ¶¶ 80-82.

In November 2018, the Area Office concluded that Par Hawaii was not an eligible small business for the 2018 contract, based on Par Hawaii's noncompliance in producing the required documentation. [35] ¶ 83. Par Hawaii became ineligible for procurement authorized by the Small Business Act or Small Business Investment Act of 1958, unless the SBA recertified Par Hawaii or reversed its size determination. [35] ¶ 84. Par Hawaii did not update its public self-certification that it qualified as a small business. [35] ¶ 85.

Par Hawaii appealed the SBA's size determination. [35] ¶ 86. The Area Office said it needed more information regarding Chai Trust—if Chai Trust had the power to control other petroleum refineries, those refineries would be considered ParHawaii's affiliates, and their barrels per day would count toward Par Pacific's combined barrels. [35] ¶ 87. Par Hawaii failed to provide the necessary information, and claimed that it lacked the authority to compel Chai Trust to share information with the SBA. [35] ¶ 88. In April 2019, the SBA's Office of Hearings and Appeals issued a final decision affirming the size determination. [35] ¶ 89. A few days later, Par Pacific's procurement director changed Par Hawaii's public self-certification to not be a small business. [35] ¶ 90. If Par Hawaii seeks to...