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MC CLUB SERVS. v. STOVALL

June 6, 1989

MC CLUB SERVICES, INC., Plaintiff,
v.
LEE C. STOVALL and BERYL STOVALL, d/b/a INTERNATIONAL OIL AND GAS CONSULTANTS, a Texas unincorporated association, and d/b/a STOVALL OPERATING COMPANY, a Texas unincorporated association, LEE C. STOVALL, BERYL STOVALL and TROY STOVALL, individually, Defendants



The opinion of the court was delivered by: ASPEN

 MARVIN E. ASPEN, UNITED STATES DISTRICT JUDGE

 Plaintiff MC Club Services, Inc. ("MC Club") brings this diversity action charging defendants Lee Stovall, Beryl Stovall, Troy Stovall and their business (collectively "Stovalls") with the breach of various common law duties arising from the parties' contractual relationship. The Stovalls move to dismiss under Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction. For the following reasons, the motion is denied.

 I.

 Factual Background *fn1"

 An Illinois corporation and various Illinois partnerships (collectively "Owners"), owners of some oil and gas wells in Texas, entered into a contractual relationship with the Stovalls by which the Stovalls agreed to operate the wells in return for a fee. The Stovalls also agreed to send to the Owners invoices as to the expenses and costs incurred and any profits earned from the wells. The Owners assigned their rights and duties arising from the contracts to MC Club, an Illinois corporation. *fn2" MC Club alleges in support of its four-count action that the Stovalls sent fraudulent statements to MC Club inflating the expenses and costs and understating the profits. The complaint charges breach of contract, actual fraud and fraudulent inducement to enter into the contract and seeks an accounting of revenues and expenses.

 The Stovalls are citizens of Texas. Their only contacts with Illinois included various telephone calls to the Owners and MC Club during and after negotiation of the contract, mailings of the statements into Illinois and a stopover at Midway Airport in Chicago. They do not operate any businesses, employ anyone or own property in Illinois. In their motion, the Stovalls contend that these contacts are insufficient to establish an Illinois court's personal jurisdiction over them.

 II.

 Illinois law circumscribes our authority to exercise personal jurisdiction over nonresident defendants in a diversity action. Young v. Colgate-Palmolive Co., 790 F.2d 567, 569 (7th Cir. 1986). We may exercise jurisdiction over nonresident corporations that are "doing business" in Illinois or whose activities in Illinois fall within the ambit of the Illinois long-arm statute, Ill.Rev.Stat. ch. 110, para. 2-209. *fn3" Deluxe Ice Cream Co. v. R.C.H. Tool Corp., 726 F.2d 1209, 1212 (7th Cir. 1984); Reeves v. Baltimore & Ohio R.R. Co., 171 Ill. App. 3d 1021, 526 N.E.2d 404, 406, 122 Ill. Dec. 145 (1st Dist. 1988). Under either approach, we must independently assess whether exercising judicial power over the defendants offends the due process clause of the United States Constitution. John Walker & Sons, Ltd. v. DeMert & Dougherty, Inc., 821 F.2d 399, 401 (7th Cir. 1987); Cook Associates, Inc. v. Lexington United Corp., 87 Ill. 2d 190, 429 N.E.2d 847, 850, 57 Ill. Dec. 730 (1981) ("The boundaries or limits under [the Illinois long-arm] statute are not to be equated with the 'minimum contacts' test under the due process clause.").

 A. The Long-Arm Statute

 MC Club instead bases our jurisdiction on the long-arm statute. To exercise jurisdiction under the long-arm statute on the basis of the transaction of business or commission of a tortious act, the plaintiff must establish a connection between the defendant's activity in Illinois and the unlawful conduct that forms the basis of the complaint. Ill.Rev.Stat. ch. 110, para. 2-209(d). Saylor v. Dyniewski 836 F.2d 341, 343 (7th Cir. 1988); Young, 790 F.2d at 570; Loos v. American Energy Savers, Inc., 168 Ill. App. 3d 558, 522 N.E.2d 841, 119 Ill. Dec. 179 (4th Dist. 1988). Since we find that the Stovalls have committed a tortious act in Illinois within the meaning of the statute, we need not determine whether they additionally have "transacted business" here.

 MC Club connects the Stovalls' alleged fraud to Illinois on the basis of the following: the Stovalls mailed their fraudulent invoices and receipts to MC Club in Illinois, and MC Club's financial injury was sustained in Illinois. The Stovalls are correct that the latter, by itself, cannot vest jurisdiction in an Illinois court. The genesis of this proposition of law came in Green v. Advance Ross Electronics Corp., 86 Ill. 2d 431, 427 N.E.2d 1203, 56 Ill. Dec. 657 (1981). There, the Illinois Supreme Court assessed Illinois' jurisdiction under the long-arm statute over counterdefendant Green whose alleged tortious conduct occurred in Texas. Green purportedly misappropriated and converted funds from the Texas subsidiary of an Illinois corporation. The issue that faced the court was whether the indirect economic injury to the Illinois parent connected the tortious conduct, all of which occurred in Texas, to Illinois for purposes of the long-arm statute.

 The court began its analysis by summarizing the "last event" doctrine as enunciated in Gray v. American Radiator & Standard Sanitary Corp., 22 Ill. 2d 432, 176 N.E.2d 761 (1961): a tort is committed where the tortious conduct and the last event necessary to establish liability occurred. Green, 427 N.E.2d at 1206-07. Thus in Gray, the fact that a defective product injured the plaintiff in Illinois was sufficient to vest an Illinois court with jurisdiction even though the tortious conduct occurred elsewhere. While this doctrine would have appeared to have supported Illinois' jurisdiction over the Green counterdefendant since economic injury occurred in Illinois, the Illinois Supreme Court held to the contrary because the injury in Illinois was too remote from the tortious conduct. The tort "ended" when the Texas subsidiary sustained direct injuries:

 
[Holding otherwise] opens the gates of long-arm jurisdiction to every Illinois resident who incurs loss as the result of the fraud of a nonresident, no matter how distant the misconduct and circumstances of the loss are from Illinois. A less tenuous and contrived connection between the tortious act and this State is ...

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