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).
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
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),
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.
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
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
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
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
million in an escrow account in Illinois as security for post-trial
briefs and appeal. Def. Mot. at ...