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Koplin v. Saul Lerner Co.

SEPTEMBER 17, 1964.

LEONARD W. KOPLIN, PLAINTIFF-APPELLANT,

v.

SAUL LERNER CO., INC., A CORPORATION; FILER, SCHMIDT & CO., AND THOMAS, HAAB & BOTTS, DEFENDANTS-APPELLEES.



Appeal from the Superior Court of Cook County; the Hon. JOSEPH J. DRUCKER, Judge, presiding. Affirmed.

MR. JUSTICE DEMPSEY DELIVERED THE OPINION OF THE COURT.

Rehearing denied September 29, 1964.

This case was transferred here after a direct appeal had been taken to the Supreme Court. That court held that its jurisdiction could not be invoked because no constitutional question had been passed upon in the trial court. The Court's opinion (29 Ill.2d 451, 194 N.E.2d 304) outlined the facts and issues:

"Summons upon the three defendants in this case was served personally in New York under sections 16 and 17 of the Civil Practice Act. (Ill Rev Stats 1961, chap 110, pars 16, 17.) The motions of two of the defendants to quash the service of process were granted, and the plaintiff has appealed directly to this court on the ground that the validity of a statute or a construction of the constitution is involved. (Ill Rev Stats 1961, chap 110, par 75.) For reasons that will be stated we are of the opinion that this court lacks jurisdiction upon direct appeal.

"The two defendants are Saul Lerner Co., (hereafter Lerner), and Filer, Schmidt & Co., (hereafter Filer). Each of them is a dealer in puts and calls and each has its principal place of business in New York City. The complaint alleges that during the years 1959, 1960 and 1961 each defendant sold put and call options in Illinois in violation of the Illinois Statutes prohibiting gambling in securities, (Ill Rev Stats 1959, chap 38, par 328; Ill Rev Stats 1961, chap 38, par 28-1(a)(4)) and that the plaintiff is entitled to recover in this qui tam action `three times the aggregate amount of all sums which had been paid to or won by each of said defendants' as a result of the sale and exercise of the options. (Ill Rev Stats 1959, chap 38, par 330; Ill Rev Stats 1961, chap 38, par 28-8.) The defendants' activities were alleged to constitute the transaction of business in Illinois so that under the statute the court had jurisdiction in personam over the defendants as to any causes of action arising out of such transactions. Ill Rev Stats 1961, chap 110, par 17.

"The defendants appeared specially for the sole purpose of objecting to the jurisdiction of the court. (Ill Rev Stats 1961, chap 110, par 20.) In its motion to quash the service of process each defendant contended that all essential parts of all transactions involving the sale and exercise of put and call options occurred in New York, and that it did not transact any business in Illinois within the meaning of section 17 of the Civil Practice Act. (Ill Rev Stats 1961, chap 10, par 17.) The motions were supported by affidavits. Filer also asserted in its motion that if section 17 was construed to authorize jurisdiction, it would contravene the due process clause of the fourteenth amendment to the Federal constitution. The court sustained the motions and entered separate orders quashing the service of summons on each defendant."

With the constitutional question of due process eliminated from the case because of the Supreme Court's decision, the only issue to be determined is whether the two defendants submitted to the jurisdiction of the Illinois courts by doing sufficient business in Illinois to come within the provision of 17(1)(a) which is the applicable subsection of section 17: "The transaction of any business within this State."

The complaint filed in this action was, in reference to the put and call options sold in Illinois, of the most general nature. After making the allegations outlined in the Supreme Court's opinion the complaint went on to say that the defendants had advertised the options for sale in a Chicago newspaper and in the Wall Street Journal, that representatives of the defendants had been present in Illinois and had promoted the business of their respective employers during the period in question, and that the sale of option contracts and the advertisement of them constituted the transaction of business in this state.

Nowhere did the complaint specify an instance of the sale of a stock option by either of the defendants. No Illinois resident's name was given as buyer or possible buyer, no dates, no places where the purchases took place were supplied, no amounts paid or losses sustained by Illinois residents were stated; the plaintiff merely drew from the general allegations of his complaint the specific conclusion that Illinois residents had lost money in speculative transactions to one or both of the defendants. The plaintiff summed up his own position in paragraph 17 of his complaint when he stated:

"That the names of each of the purchasers of said put and call option contracts, the respective dates of said contracts and of the purchase thereof, the amounts paid and lost by each of said purchasers in connection with each of said contracts, the shares of stock covered by each of said contracts and the precise dates of said option contracts and the expiration dates of each of said option contracts is unknown to the plaintiff, but is well known to the defendants and each of them will appear from the books and records of the respective defendants."

The plaintiff prayed for full and complete discovery to supply the deficiencies which were so candidly admitted in paragraph 17.

The complaint was couched in such general terms that it was vulnerable to a motion to strike. No such motion was made, however, and none could have been made by the defendants without jeopardizing their special appearances. Ill Rev Stats c 110, § 20(1) (1963). A motion to strike would have admitted that the case was properly in court; the defendants could not ask the court to exercise jurisdiction over the case and at the same time deny that jurisdiction existed. Jones v. Jones, 40 Ill. App.2d 217, 189 N.E.2d 33.

Each defendant denied that it had transacted any business in Illinois within the meaning of section 17(1)(a). In an affidavit Lerner stated that its business was conducted in the City of New York, that when someone wished to buy an option contract the person normally contacted his own broker who would in turn communicate with a New York brokerage firm. This New York firm then would get in touch with Lerner and inquire if there was such an option for sale. If the purchase was consummated it was then done by Lerner selling the option contract to the New York broker, after which Lerner had no idea where it might be sent. The affidavit stated that the contracts were bearer instruments and that Lerner was not informed of the identity or residence of the purchasers. Further, it was stated that the company had no knowledge of any direct sale to any resident of Illinois and that if such a sale had been made it was effected in New York. Lerner denied that any of its agents transacted business in the state but said that one of its employees had conducted a short course in option contracts in Chicago and that other employees had visited Chicago brokerage firms.

In its special and limited appearance and in a supporting affidavit, Filer, Schmidt, a New York partnership, filed a like challenge to jurisdiction. They disclosed that its routine operation was similar to that of Lerner. It stated that it conducted its business in New York and that its contracts were executed, paid for, delivered and performed in New York; it further stated that it neither had an office nor employees in Illinois and did not solicit business from the general public, that it had no interest in anyone in Illinois who was engaged in the put and call business and that it had no property, bank accounts or telephone listing in the state. A partner said, in the affidavit, that the firm occasionally received inquiries from Illinois brokers and that 12 residents of the state had maintained accounts with the partnership at some time during the period covered by the complaint, ...


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