United States District Court, N.D. Illinois
January 16, 2004.
TRAVELERS CASUALTY AND SURETY COMPANY, Plaintiff,
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).
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.
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
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 p. 2; Def. Mot. Ex. B Interclaim Recovery
and Interclaim Holding are the beneficiaries; however, the account is
only payable upon successful final outcome of all appeals.*fn2 Def. Mot.
IV. The Present Litigation
While simultaneously pursuing the Northern District of Illinois
litigation in December 2000, Interclaim Recovery and Interclaim Holdings
representatives repeatedly contacted Travelers to request that it assume
responsibility for the legal fees in the Alberta, Canada proceedings.
Compl. ¶¶ 23-28. It was suggested that Travelers do so to protect its
exposure to claims on the surety bond, as Interclaim Recovery and
Interclaim Holdings would not "defend any claim for costs or damages
arising from the injunction" or "pay any such costs or damages." Compl.
¶¶ 23-28. Travelers declined. Compl. ¶ 26. Since then, Travelers
has repeatedly demanded that defendants "indemnify and exonerate [it]
from any and all liability under the Bond and that [defendants] procure
the discharge of [it] from the Bond." Compl. ¶ 29. Defendants have
failed to do so. Compl. ¶ 30.
As a result, Travelers brought suit against defendants for breach of
contract, quia timet, and constructive trust, in part to prevent
defendants from receiving payment of the jury award in the Northern
District of Illinois litigation without satisfying their obligations
under the common law of surety and the written indemnity agreement.
Compl. ¶ 1.
I. Personal Jurisdiction
Defendants contend this court lacks personal jurisdiction over them. A
federal district court sitting in Illinois in a diversity case may assert
personal jurisdiction if appropriate under the forum state's law.
RAR, Inc., 107 F.3d at 1275. Illinois authorizes personal
jurisdiction on any basis permitted by the Illinois Constitution and the
United States Constitution. Id. at 1277. The Illinois Supreme
Court has noted that federal law may be used as guidance for construction
of the Illinois due process clause. Lewis v. Spagnolo,
186 Ill.2d 198, 227, 710 N.E.2d 798, 812 (1999). Absent any authority
supporting a broader construction, the Illinois due process clause may be
interpreted the same as the federal due process clause. Id.
Consequently, the court confines jurisdictional analysis to whether
federal due process permits jurisdiction over defendants.
Federal due process requires defendants to have "certain minimum
contacts with [Illinois] such that the maintenance of the suit does not
offend `traditional notions of fair play and substantial justice.'"
International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
Defendants may be subject to either general or specific jurisdiction
under Illinois law.
A. General Jurisdiction
General jurisdiction is appropriate only where defendants have
"continuous and systematic general business contacts" with Illinois.
RAR, Inc., 107 F.3d at 1277 (citing Helicopteros Nacionales
de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984)). Those
contacts must be so extensive as to make it "fundamentally fair to
require [defendants] to answer in any [Illinois] court in any
litigation arising out of any transaction or occurrence taking
place anywhere in the world." Purdue Research Foundation v.
Sanofi-Synthelabo S.A., 338 F.3d 773,
787 (7th Cir. 2003). In determining whether general jurisdiction
exists, courts examine the following factors: (1) the extent to which
defendants conduct business in Illinois; (2) whether defendants maintain
offices or employees in Illinois; (3) whether defendants send agents into
Illinois to conduct business; (4) whether defendants advertise or solicit
business in Illinois; and (5) whether defendants have designated an agent
for service of process in Illinois. Interlease Aviation Investors II
(Aloha) LLC, 262 F. Supp.2d at 906-07.
Defendants are foreign corporations with foreign principal places of
business. Defendants have no offices, employees, or real property in
Illinois. Defendants have not advertised or solicited business in
Illinois. Nor have defendants designated an agent for service of process
in Illinois. It is undisputed that the only contacts Interclaim Recovery
and Interclaim Holdings have with Illinois are the Madison County and the
Northern District of Illinois litigation, and the contingent beneficial
interest held in the Northern District of Illinois litigation escrow
account. It is also undisputed that Interclaim Bermuda did not
participate in either the Madison County or the Northern District of
Nevertheless, Travelers argues that general jurisdiction exists because
Interclaim Recovery and Interclaim Holdings are doing business in
Illinois. Specifically, Travelers claims that jurisdiction is proper
because Interclaim Recovery and Interclaim Holdings have conducted their
champerty and maintenance business the business of acquiring and
prosecuting the legal claims of third parties in Illinois
over an extended period of time by facilitating and supporting a
class action on behalf of Down's purported victims in Madison County. In
so doing, Travelers points to the actions of Interclaim Recovery and
Interclaim Holdings in hiring Ness Motley as legal counsel, providing
Ness Motley with substantial legal and factual materials to assist in
prosecuting the class action, reserving the right to approve all
legal filings prepared for the class action, and sending representatives
to Illinois to meet with Ness Motley lawyers, prepare for hearings and
discuss the possibility of settlement. Travelers' argument is
unpersuasive. The materials submitted show that the participation of
Interclaim Recovery and Interclaim Holdings in the Madison County
litigation was limited to at most a nine month period,
ending in September 2000. PL Resp. Ex. 1 ¶¶ 19, 38-42. Such limited
contacts do not warrant a finding of general jurisdiction sufficient to
require Interclaim Recovery and Interclaim Holdings to come to Illinois
courts more than three years later to answer
"any litigation arising out of any transaction or
occurrence taking place anywhere in the world." Purdue
Research Foundation, 338 F.3d at 787.
Travelers cannot rely on the subsequent lawsuit of Interclaim Recovery
and Interclaim Holdings against Ness Motley in the Northern District of
Illinois as proof that defendants were engaging in champerty and
maintenance business in Illinois. Simply put, the Northern District of
Illinois litigation had nothing to do with champerty and maintenance.
Instead, the Northern District of Illinois litigation was a lawsuit in
which Interclaim Recovery and Interclaim Holdings sought to recover
damages sustained when Ness Motley breached its fiduciary and contractual
duties to them in August and September 2000. Defendants rely on an
eighty-seven year old case, In re Indiana Transportation Co.,
244 U.S. 456, 458 (1917), for the proposition that the court does not
any power in fact over the defendant unless it can
seize him again, it cannot introduce new claims of
new claimants into an existing suit simply because
the defendant appeared in that suit. The new
claimants are strangers and must begin their
action by service just as if no one had sued the
Travelers, on the other hand, has not carried its burden by
providing any authority whatsoever for the dubious proposition that
general jurisdiction may be asserted on the basis of involvement in an
unrelated lawsuit. The court is unpersuaded that the prosecution of the
Northern District of Illinois litigation by Interclaim Recovery and
Interclaim Holdings constitutes "doing business" in Illinois. Cf.
Scheidler v. National Organization for Women, Inc., 739 F. Supp. 1210
(N.D.Ill. 1990) ("it is unclear to this court whether filing court
papers and making court appearances in a case would ever constitute the
`transacting of business' for purposes of the Illinois long-arm
statute"); Pressed Radiator Co. v. Hughes, 1910 WL 1933 (Ill.
App. Ct. 1910) (maintenance of lawsuit in Illinois court did not
constitute "doing business" or "transacting business" for purposes of
statute regulating foreign corporations); Payton v. Summit Loans,
Inc., 253 A.2d 459, 461 (D.C. 1969) ("the initiation of an action by
a foreign corporation does not in and of itself constitute doing business
in the jurisdiction where suit is brought"); 19 C.J.S.
Corporations § 942 (2003) ("[a] corporation is not
necessarily doing business in the state merely because it . . . initiates
litigation in the state.").
Because the court has determined that insufficient grounds exist to
assert general jurisdiction over Interclaim Recovery and Interclaim
Holdings, it need not reach the issue of whether sufficient grounds exist
to assert general jurisdiction over Interclaim Bermuda, their parent
company. Travelers does not refute Interclaim Bermuda's lack of contacts
with Illinois. Instead, Travelers advances the untenable argument, that
the jurisdictional contacts of Interclaim Recovery and Interclaim
Holdings are attributable to Interclaim Bermuda by virtue of its control
over its subsidiaries. Central States, Southeast and Southwest Areas
Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 943 (7th
Cir. 2000) (personal jurisdiction cannot be asserted
on the sole basis of corporate affiliation or stock ownership where
there is substantial observance of corporate formalities and the parent
does not exert an unusually high degree of control over the
subsidiary). Because this court has determined that the jurisdictional
contacts of Interclaim Recovery and Interclaim Holdings are insufficient,
any contacts attributed to Interclaim Bermuda are also necessarily
insufficient. Accordingly, there is no need to examine the degree of
control Interclaim Bermuda exerts over Interclaim Recovery and Interclaim
B. Specific Jurisdiction
Travelers contends that the court has specific jurisdiction over
Interclaim Recovery and Interclaim Holdings because its claims arise from
their contacts with Illinois. To establish specific jurisdiction,
Travelers must establish that Interclaim Recovery and Interclaim Holdings
purposefully established minimum contacts with Illinois. Burger King
Corp. v. Rudzewicz, 471 U.S. 462, 476-77 (1985). In determining
whether sufficient minimum contacts exist, courts evaluate whether a
defendant could "reasonably anticipate being haled into court" in
Illinois. World-Wide Volkswagon Corp. v. Woodson, 444 U.S. 286,
297 (1980). These contacts may not be fortuitous or attenuated. Rather,
this standard is satisfied when defendants purposefully direct their
activities at Illinois and the litigation arises from injuries caused by
those activities. Burger King Corp., 471 U.S. at 474.
The Seventh Circuit has explained that the causal connection between
litigation and defendants' contacts with Illinois must be close enough to
comport with fair play and substantial justice. RAR, Inc., 107
F.3d at 1278. Defendants' contacts with Illinois are not merely
aggregated to determine evidence of the constitutionally-required minimum
contacts. Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 712-13 (7th
Cir. 2002). Instead, "[t]he action must directly arise
out of the specific contacts between the defendant and the forum
state." RAR, Inc., 107 F.3d at 1277 (citing Sawtelle v.
Farrell, 70 F.3d 1381, 1389 (1st Cir. 1995) (emphasis added)). In a
contract case, nothing is relevant to the minimum contacts analysis
except "the dealings between the parties in regard to the disputed
contract." RAR, Inc., 107 F.3d at 1278; Hyatt Int'l
Corp., 302 F.3d at 717.
Travelers has failed to offer sufficient facts related to the surety
bond that demonstrate Interclaim Recovery and Interclaim Holdings
purposefully directed their activities toward Illinois, and that those
same activities give rise to this lawsuit. Indeed, the jurisdictional
allegations on which Travelers relies are not related at all to the
surety bond. This particular action involving Travelers'
allegations of breach of contract and common law surety rights
does not arise out of any facts involving Interclaim Recovery and
Interclaim Holdings' contacts with Madison County or the Northern
District of Illinois. Instead, this action arises out of the conduct of
Interclaim Recovery and Interclaim Holdings with respect to the surety
bond in Alberta, Canada. No event in either the Madison County or the
Northern District of Illinois litigation caused Interclaim Recovery and
Interclaim Holdings to fail to abide by the indemnity agreement governing
the surety bond. Nor is Travelers' assertion convincing that personal
jurisdiction exists because the Madison County litigation is part and
parcel of the Canadian litigation. The fact that Interclaim Recovery and
Interclaim Holdings intended the Madison County litigation to result in a
judgment that could then be used as an enforceable debt in the British
Columbia bankruptcy proceeding is irrelevant. The surety bond was issued
for the Alberta, Canada lawsuit, not the British Columbia, Canada
bankruptcy case. Travelers has not connected the Madison County
litigation to the Alberta, Canada surety bond. Accordingly,
the court finds that Travelers has not satisfied its burden to
establish specific jurisdiction over Interclaim Recovery or Interclaim
For the reasons explained above, Travelers' argument that specific
jurisdiction exists over Interclaim Bermuda due to its control of its
subsidiaries is rejected. Central States, Southeast and Southwest
Areas Pension Fund, 230 F.3d at 943. The argument fails in light of
Travelers' inability to establish sufficient jurisdictional contacts with
respect to Interclaim Recovery and Interclaim Holdings.
The court does not accept Travelers' dire prediction that failure to
assert personal jurisdiction over defendants in this case means that
defendants "would never be subject to personal jurisdiction in any U.S.
court." Pl.'s Resp. at p, 10. United States courts may assert personal
jurisdiction over foreign defendants to the extent allowable by law,
provided the action arises out of the foreign defendants' contacts with
the forum state. Here, the surety bond was negotiated and issued abroad
between Canadian and Irish parties for purposes of Canadian litigation.
There is no sound basis for this court's jurisdiction over foreign
parties where the claims arise out of foreign transactions with no nexus
II. Quasi-in-rem jurisdiction
To assert quasi-in-rem jurisdiction, the res must be present
in the jurisdiction and federal and Illinois due process requirements
must be satisfied. Shaffer v. Heitner, 433 U.S. 186 (1977).
Because the constitutional requirements of minimum contacts under
International Shoe and its progeny are not met, Travelers'
contention that quasi-in-rem jurisdiction exists must also fail.
Defendants' motion to dismiss for lack of personal jurisdiction is