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TRAVELERS CASUALTY AND SURETY v. INTERCLAIM

January 16, 2004.

TRAVELERS CASUALTY AND SURETY COMPANY, Plaintiff,
v.
INTERCLAIM (BERMUDA) LTD., et al. Defendants



The opinion of the court was delivered by: SUZANNE CONLON, District Judge

MEMORANDUM OPINION AND ORDER

In this diversity action, Travelers Casualty and Surety Co. ("Travelers") sues Interclaim (Bermuda) Ltd. ("Interclaim Bermuda"), Interclaim Recovery Ltd. ("Interclaim Recovery"), and Interclaim Holdings Ltd. ("Interclaim Holdings") for breach of contract (Count I), quia timet (Count II), and constructive trust (Count III). Specifically, Travelers claims that Interclaim Bermuda, Interclaim Recovery, and Interclaim Holdings (collectively, "defendants") have breached their obligations to Travelers with respect to a surety bond issued in April 1999 in connection with an injunction obtained by Interclaim Recovery and Interclaim Holdings in the province of Alberta, Canada. Defendants move to dismiss for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2).

LEGAL STANDARD

  Travelers has the burden of demonstrating that this court has personal jurisdiction over defendants. RAR, Inc. v. Turner Diesel, Ltd., 107 E.3d 1272, 1276 (7th Cir. 1997). In deciding a motion to dismiss for lack of personal jurisdiction, all well-pleaded jurisdictional allegations in Page 2 the complaint are accepted as true unless controverted by affidavit. Willard v. Ingersoll-Rand Co., No. 03 C 4665, 2003 WL 22175582 (N.D.III. 2003), Any conflicts in affidavits or pleadings must be resolved in Travelers' favor, but the court accepts as true any unrefuted facts offered by defendants. Interlease Aviation Investors II (Aloha) L.L.C., et al. v. Vanguard Airlines, Inc., 262 F. Supp.2d 898, 905 (N.D. Ill. 2003),
BACKGROUND
  Travelers is a Connecticut corporation with its principal place of business in Hartford, Connecticut. Compl. ¶ 3. Interclaim Bermuda is a Bermuda corporation with its principal place of business in Bermuda. Compl. ¶ 2; Cohen Decl. ¶ 2. Interclaim Recovery and Interclaim Holdings, wholly owned subsidiaries of Interclaim Bermuda, are Irish corporations with their principal places of business in Ireland. Compl. ¶ 2; Cohen Decl, ¶¶ 1, 6. Interclaim Bermuda is merely a holding company. Cohen Decl. ¶ 6. The business of defendants is to acquire and enforce multi-jurisdictional claims of injured parties. Compl. ¶ 4, "Interclaim acquires title to a liquidated claim or debt by paying its owner cash or a contingent amount payable upon successful enforcement of the claim." Pl. Resp. Ex. 1 ¶ 8.

 I. Canadian Litigation

  In late 1998 and early 1999, Interclaim Recovery and Interclaim Holdings commenced lawsuits in British Columbia and Alberta, Canada on behalf of individuals purportedly victimized by James Blair Down and others (hereinafter "Down" or "Down group") in connection with an illegal mass mail solicitation and telemarketing operation revolving around certain games of chance and sweepstakes. Compl. ¶ 8-9. In order to do so, Interclaim Holdings Page 3 had obtained power of attorney agreements from sixteen alleged victims of the Down Group and purchased trade debt owed by the Down group to a data processing and mass mailing company, a printing company, and a telephone company that revealed the identity of 418, 256 more alleged victims. Pl.'s Resp. Ex. 1 ¶¶ 10-11. The British Columbia proceedings sought to force the Down group into involuntary bankruptcy, while the Alberta proceedings asserted a "representative proceeding" (i.e., class action) to recover damages resulting from the Down group's malfeasance. Compl. ¶ 13; Pl Resp. Ex. 1 ¶¶ 12-13. As part of the Alberta proceedings, Interclaim Recovery and Interclaim Holdings sought an injunction freezing certain assets, including Down's, and were required to post a bond to cover any damages and costs arising from the injunction. Compl. ¶¶ 10-11. From Ireland, defendants negotiated for the issuance of the bond in the amount of $3,000,000 (Canadian) with Federation Insurance Company of Canada ("Federation"). Cohen Decl. ¶¶ 12-13; Compl ¶ 15. Travelers is the successor surety on the bond, Cohen Decl. ¶ 12; Compl. ¶ 15.

  In exchange for the surety bond, an indemnity agreement was executed by Martin S. Kenney as President and CEO of "Interclaim Recovery Ltd." and by Martin S. Kenney as President, CEO and Director of "Interclaim (Bermuda) Ltd. and Subsidiaries." Compl. ¶ 16; Compl. Ex. 2. Travelers is also the successor indemnitee under the indemnity agreement. Compl. ¶ 16. Among other things, the indemnity agreement required defendants to exonerate and indemnify the surety. Compl. ¶¶ 16-17. The indemnity agreement is governed by Irish law. Compl. Ex. 2.

  Interclaim Recovery and Interclaim Holdings fared poorly in the Canadian proceedings. In August 1999, the British Columbia bankruptcy proceedings were dismissed on the basis that Page 4 the power of attorney and trade debt purchase agreements purportedly violated the English common law doctrine against champerty.*fn1 Pl.'s Resp. Ex. 1 ¶ 16. Then, in November 1999, the Alberta court struck the class action portion of the representative proceeding on the basis that Alberta lacks a class action procedure and awarded costs to Down and another group of defendants ("Renoir Group"). Compl. ¶ 18; Pl.'s Resp. Ex. 1 ¶ 17. According to Travelers, the Renoir Group has recently indicated that it intends to collect damages and costs against the surety bond. Compl. ¶ 18-21.

 II. Madison County, Illinois Litigation

  As a result of the adverse rulings in the Canadian litigation, Interclaim Recovery and Interclaim Holding decided to commence a class action in the United States against Down and others. Compl. ¶ 34; P1.'s Resp. Ex. ¶ 18. The "goal" of Interclaim Recovery and Interclaim Holdings was to obtain a favorable judgment that could then be filed as an enforceable debt in the British Columbia bankruptcy proceeding, thereby facilitating the liquidation of Down's assets for purposes of obtaining funds for the victim class in the United States action. PL's Resp. Ex. 1 ¶ 18. To execute this plan, Interclaim Recovery and Interclaim Holdings retained Ness, Motley, Loadholt, Richardson & Poole ("Ness Motley"), a law firm incorporated and principally doing business in South Carolina. Compl. ¶¶ 2, 34; PL's Resp. Ex. 1 ¶ 19. Ness Motley selected the Circuit Court of Madison County, Illinois for the class action (hereinafter, the Madison County litigation). PL's Resp. Ex. 1 ¶ 20. Interclaim Recovery, Interclaim Holdings, and Ness Motley entered into a retainer agreement that, among other things, required Ness Motley to Page 5 maintain the confidentiality of any materials provided and to review all filings with counsel for Interclaim Recovery and Interclaim Holding prior to filing. Pl.'s Resp. Ex. 1 ¶¶ 19, 21.

  On March 10, 2000, Ness Motley filed a class action complaint in the Madison County litigation, Case No. 00 C 223, styled as Schuppert, et al. v. James Blair Down, et al. The complaint named Down and others as defendants, and alleged violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. PL's Resp. Ex. 1 ¶ 26, Ex. 1 C ¶¶ 7-16. Interclaim Recovery and Interclaim Holdings assisted with the prosecution by providing Ness Motley with substantial information and documents and by sending representatives to Illinois to meet with Ness Motley lawyers, prepare for hearings, and entertain settlement discussions. PL's Resp. Ex. l ¶¶ 20-20-21, 27, 31. None of the defendants, however, were ever parties to the Madison County litigation. Cohen Decl. ¶ 16; Pl.'s Resp. at p. 3. In August and September 2000, Ness Motley negotiated a settlement that "expressly excluded [Interclaim Recovery and Interclaim Holdings] from receiving any portion of the settlement and from receiving any information about the settlement discussions" and withdrew as their counsel. Compl. ¶ 35.

 III. Northern District of Illinois litigation

  After the withdrawal, Interclaim Recovery and Interclaim Holdings filed a complaint against Ness Motley in the United States District Court for the Northern District of Illinois in December 2000 for, among other things, breach of contractual and fiduciary duties, Case No. 00 C 7620, styled as Interclaim Holdings Ltd., et al. v. Ness, Motley, Loadholt, Richardson & Poole (hereinafter, the "Northern District of Illinois litigation"). Compl. ¶ 36. In July 2003, Interclaim Recovery and Interclaim Holding were awarded $8.3 million in compensatory damages and $27.7 million in punitive damages in a jury verdict. Compl. ¶ 37. Ness Motley placed $9.6 Page 6 million in an escrow account in Illinois as security for post-trial briefs and appeal. Def. Mot. at ...


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