The opinion of the court was delivered by: Bua, District Judge.
Before the Court is defendants' motion to dismiss
plaintiffs' complaint for compensatory damages. Plaintiffs
allege numerous theories of recovery, including violations of
the Racketeer Influenced and Corrupt Organization Act
("RICO"), 18 U.S.C. § 1962(c); the Securities Exchange Act of
1934, 15 U.S.C. § 78j(b) (the 1934 Act); the Securities Act of
1933 (the 1933 Act), 15 U.S.C. § 77q(a); and the Illinois
Consumer Fraud and Deceptive Practices Act, 121 1/2
Ill.Rev.Stat. § 262 (1985). Plaintiffs also allege common law
fraud and breach of fiduciary duty.
This Court's jurisdiction is based on 28 U.S.C. § 1331,
18 U.S.C. § 1964, 15 U.S.C. § 77v, 15 U.S.C. § 78aa, and on
principles of pendent jurisdiction. For the reasons stated
herein, the Court denies defendants' motion to dismiss in part.
The Court, however, grants defendant Touche Ross' motion to
dismiss Count VI, grants TMS' motion to dismiss TMS from Count
I, and grants defendants TMS and Harris' motion to dismiss
The following facts are alleged in plaintiffs' complaint.
For purposes of this order they are considered to be true.
During the course of managing plaintiffs' accounts, TMS and
Harris charged excessive commission fees. In addition, they
materially misrepresented stock investments as suitable to
plaintiffs' investive goals and objectives when they were not.
TMS and Harris also recommended investments without adequately
investigating the tax consequences to plaintiffs. Along these
lines, defendant Touche Ross wrongfully conveyed tax
information that induced plaintiffs to accept TMS and Harris'
investment recommendations. Plaintiffs apparently sustained
losses and this litigation ensued.
Count I of the complaint alleges a § 1962(c) RICO violation.
Counts II and III set forth securities fraud violations of §
10(b) of the 1934 Act and § 17(a) of the 1933 Act. Count IV
alleges common law fraud, while Counts V and VI allege breach
of fiduciary duty. Count VII pleads an action under the
Illinois Consumer Fraud and Deceptive Business Practices Act.
I. Touche Ross' Motion to Dismiss for Lack of Subject Matter
Touche Ross is named only in the breach of fiduciary duty
allegations in Count VI. Since Count VI lacks an independent
basis for original federal jurisdiction, Touche Ross is joined
as a pendent party defendant. Touche Ross therefore moves to
dismiss plaintiffs' complaint for lack of subject matter
A pendent party defendant is not a party to a
jurisdictionally sufficient main claim, but is only a party to
a related state law claim. The Supreme Court has never
expressly acknowledged the legitimacy of pendent party
jurisdiction. Knudsen v. D.C.B., Inc., 592 F. Supp. 1232, 1235
(N.D.Ill. 1984). In the Seventh Circuit, such jurisdiction has
been generally met with disfavor. Thomas v. Shelton,
740 F.2d 478, 487 (7th Cir. 1984). However, pendent party jurisdiction
is not dead. A few opinions have approved pendent party
jurisdiction, see Moore v. The Marketplace Restaurant, Inc.,
754 F.2d 1336, 1353 (7th Cir. 1985) (separate opinion by
Posner, J.), suggesting that the exercise of such jurisdiction
is within the trial court's sound discretion. Musikiwamba v.
ESSI, Inc., 760 F.2d 740, 754 (7th Cir. 1985).
Courts allowing pendent party jurisdiction require the
federal and state claims to arise from a common nucleus of
operative facts such that a plaintiff would ordinarily be
expected to try his claims in one judicial proceeding.
Moore v. Marketplace Restaurant, Inc., 754 F.2d 1336, 1353 (7th
Cir. 1985). Moreover, the valid pendent claim must be based on
the same facts as the main claim for the two claims to be
considered part of a single case. Bernstein v. Lind-Waldock &
Co., 738 F.2d 179, 187 (7th Cir. 1984).
Plaintiffs' claims against TMS and Harris and claim against
Touche Ross are related, but the claims do not arise from a
common nucleus of operative fact and cannot be considered part
of the same case. TMS and Harris had a contractual
relationship with plaintiffs, whereas Touche Ross did not. In
addition, TMS and Harris repeatedly misrepresented the
liquidity and suitability of numerous investments to
plaintiffs' known investment objectives. Touche Ross'
misrepresentation was limited to tax advice regarding a single
investment given without knowledge of plaintiffs' investment
goals. Plaintiffs' pendent party claim against Touche Ross
should not be joined with plaintiffs' other federal claims
since pendent ...