United States District Court, N.D. Illinois, Eastern Division
October 24, 2005.
JOHN H. WALDOCK, et al., Plaintiffs,
M.J. SELECT GLOBAL, LTD., et al., Defendants.
The opinion of the court was delivered by: AMY ST. EVE, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs have filed a Third Amended Complaint ("TAC") against
multiple Defendants alleging a fraudulent investment scheme in
connection with the purchase of shares of M.J. Select Global,
Ltd. ("M.J. Select"), a Bahamian mutual fund. Plaintiffs have
sued Defendants Southridge Capital Management, LLC
("Southridge"), Stephen M. Hicks and Daniel S. Pickett
(collectively, the "Southridge Defendants"), and others for
losses resulting from their investments in M.J. Select. The
Southridge Defendants move to dismiss all of the federal and
state claims against them for lack of personal jurisdiction and
failure to state a claim.*fn1 The Court grants their motion
and dismisses Plaintiffs' claims against the Southridge
Defendants with prejudice.
This case is related to Zurich Capital Markets Inc. v.
Coglianese, No. 03 C 7960, (the "ZCM Case"), also pending before the Court. The Court has
addressed similar motions in that case. See Zurich Capital
Markets Inc. v. Coglianese, 332 F. Supp. 2d 1087 (N.D. Ill.
2004) (the "August 2, 2004 Opinion"); Zurich Capital Markets
Inc. v. Coglianese, No. 03 C 7960, 2004 WL 2191596 (N.D. Ill.
Sept. 22, 2004) (the "September 22, 2004 Opinion"); and Zurich
Capital Markets Inc. v. Coglianese, No. 03 C 7960, 2005 WL
1950653 (N.D. Ill. August 12, 2005) (the "August 12, 2005
Opinion"). Although the ZCM case involves different plaintiffs
and a different complaint, because many of the allegations are
similar to the ones in this case and because both cases are based
on investments in the same allegedly fraudulent scheme, the
Court's reasoning in its August 2, 2004, September 22, 2004 and
August 12, 2005 opinions applies equally to many of the issues in
I. The Plaintiffs
The Plaintiffs in this case all invested in M.J. Select and
lost all or substantial portions of their investments. Plaintiffs
include: John H. Waldock, solely as Trustee of the John H.
Waldock Trust; Mary Jane S. Hill and John E. Rosino, solely as
Trustees of the Andrew W. Waldock Trust, John H. Waldock, Jr.
Trust, Julia Wright Waldock Trust, Cameron Douglas Waldock Trust,
Gary Phillip Liebenthal, II Trust, Samuel Louis Waldock Trust,
Benjamin Nicholas Waldock Trust, Dustin J. Houck Trust, Daniel R.
Houck Trust, Erik J. VanDootingh Trust, Ian A. VanDootingh Trust,
John H. Waldock, III Trust, Andrew W. Waldock, Jr. Trust,
Christopher J. Waldock Trust; 766347 Ontario Ltd., a Canadian
Corporation; the James Boughner Foundation, a Canadian
corporation; Ed Pettegrew, Sr., a citizen of Florida; David
Miller, a citizen of California; John A. Copeland, as Trustee
under a trust agreement dated April 18, 1988; Jack C. Kenning and
Barbara Straka-Kenning, citizens of Ohio; Robert M. Warner, Sr. individually and as beneficiary of Independent Trust Corporation
Trust, for Adam Scott Warner and for Andrew Robert Warner,
Account No. 180 in the name of Robert Warner, Account No. 263 in
the name of Adam S. Warner and Account No. 264 in the name of
Andrew Robert Warner; and George Lukas, a citizen of New Jersey.
Collectively, these individuals are referred to as "Plaintiffs."
(R. 251-1; Third Am. Compl. at ¶¶ 16-45.)
II. The Southridge Defendants
Plaintiffs have sued multiple Defendants, including the
Southridge Defendants. Southridge is a Connecticut corporation
with its principal place of business in Connecticut. Southridge
is or was the organizer and sub-advisor of Dominion Capital Fund
Limited ("Dominion"). (Id. at ¶ 88.)
Steven M. Hicks, a Connecticut resident, is one of the
principals of Southridge and operates and administers Southridge
and Dominion. (Id. at ¶ 89.) Daniel S. Pickett, a Wisconsin
resident, was one of the principals of Southridge, and operated
and administered Southridge and Dominion. (Id. at ¶ 90.)
III. The Coglianese Defendants
Michael Coglianese ("Coglianese"), a citizen of Illinois, is an
Illinois certified public accountant. (Id. at ¶ 62.) Michael
Coglianese, C.P.A., P.C. is an Illinois professional corporation
of which Coglianese is the president, officer, director and sole
shareholder. (Id. at ¶ 63.) Gina Coglianese, a citizen of
Illinois, is Coglianese's wife. (Id. at ¶ 64.)
Commodity Compliance Services, Inc. is an Illinois Corporation
that acted through its individual agents, Coglianese and Gina
Coglianese, and through its corporate agents, CCS, Inc. and GLC
Services, Inc. (Id. at ¶ 65.) CCS, Inc. is an Illinois
corporation that acted through its individual agents, Coglianese and Gina Coglianese, and through
its corporate agents, CCS, Inc. and GLC Services, Inc. (Id. at
GLC Services, Corp. is an Illinois corporation that acted
through its individual agents, Coglianese and Gina Coglianese,
and through its corporate agents, CCS, Inc. and Commodity
Compliance Services, Inc. (Id. at ¶ 67.)
IV. The Alleged Scheme*fn2
Plaintiffs allege that Defendants participated in a complex
scheme to defraud M.J. Select's investors. They contend that
Defendants used false and misleading offering materials to induce
Plaintiffs to invest in M.J. Select. (Id. at ¶ 9.) Plaintiffs
allege that Defendants falsely represented that Plaintiffs'
"investments would be invested in liquid investments and would be
redeemable on fifteen days notice." (Id. at ¶ 10.) Plaintiffs
further allege that M.J. Select transferred Plaintiffs' money to
Global Arbitrage Development Ltd. ("GAD"), an illiquid investment
fund. (Id. at ¶ 152.) GAD, in turn, allegedly used Plaintiffs'
money to invest in Dominion, a fund that purchased illiquid
securities. (Id. at ¶ 165(a).) Plaintiffs allege that
Coglianese "was one of the primary organizers and operators of
this fraudulent scheme" and that he acted as an agent for the
Southridge Defendants when he was defrauding M.J. Select's
investors. (R. 338-1; Pls.' Opp'n Dismissal Mot. Southridge Defs.
at 103.) In total, Plaintiffs assert that they lost approximately
$9.8 million through the allegedly fraudulent scheme. (Third Am.
Compl. at ¶ 12.) ANALYSIS
I. Legal Standards
The Southridge Defendants bring their motion pursuant to
Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6). A Rule
12(b)(2) motion to dismiss for lack of personal jurisdiction
tests whether a federal court has personal jurisdiction over a
defendant. See Fed.R.Civ.P. 12(b)(2). A plaintiff bears the
burden of demonstrating the existence of personal jurisdiction
over a defendant. RAR, Inc. v. Turner Diesel, Ltd.,
107 F.3d 1272, 1276 (7th Cir. 1997). A plaintiff need only make a
prima facie showing that jurisdiction over a defendant is proper.
Michael J. Neuman & Assoc., Ltd. v. Florabelle Flowers, Inc.,
15 F.3d 721, 724-25 (7th Cir. 1994). In determining whether a
plaintiff has met this burden, a court must resolve all factual
disputes in the plaintiff's favor and may consider matters
outside the pleadings. See Purdue Research Found. v.
Sanofi-Synthlabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003).
A Rule 12(b)(6) motion tests whether plaintiff has "state[d] a
claim upon which relief can be granted." Fed.R.Civ.P.
12(b)(6). When deciding a motion to dismiss pursuant to Rule
12(b)(6), the Court views "the complaint in the light most
favorable to the plaintiff, taking as true all well-pleaded
factual allegations and making all possible inferences from those
allegations in his or her favor." Lee v. City of Chicago,
330 F.3d 456, 459 (7th Cir. 2003). Dismissal is appropriate only
where it appears beyond doubt that under no set of facts would
plaintiff's allegations entitle him or her to relief. See
Henderson v. Sheahan, 196 F.3d 839, 846 (7th Cir. 1999).
II. Federal Law Claims
Plaintiffs allege a number of federal law claims against the
Southridge Defendants. Specifically, Plaintiffs allege: (1) securities law violations
pursuant to Section 10(b) of the Securities and Exchange Act of
1934 and Rule 10b-5; (2) violations of the Investment Company Act
of 1940; and (3) control person liability under Section 20(a) of
the Securities and Exchange Act of 1934 and Section 48(a) of the
Investment Company Act of 1940. Each of these claims, with the
exception of one of Plaintiffs' claims under the Investment
Company Act of 1940, is premised on the actions of Coglianese.
Plaintiffs claim that Coglianese's actions are imputed to the
Southridge Defendants because Coglianese allegedly acted as an
agent of the Southridge Defendants. (R. 338-1; Pls.' Opp'n
Dismissal Mot. Southridge Defs. at 4-5.)
An agency relationship results from the "manifestation of
consent by one person to another that the other shall act on his
behalf and subject to his control, and consent by the other so to
act."*fn3 Rest. 2d Agency § 1. "[W]hen the plaintiff relies
upon the same circumstances to establish both the alleged fraud
and the agency relationship of a defendant," plaintiff must plead
agency with particularity. Lachmund v. ADM Investor Services,
Inc., 191 F.3d 777, 783 (7th Cir. 1999). Furthermore, the
Court has previously articulated that
[t]he mere use of the label "agent" does not
sufficiently establish an agency relationship in
order to impose liability under Rule 9(b) or the
PSLRA where the agency relationship and the fraud
claims are intertwined. A plaintiff must plead facts
showing the existence and scope of the agency
relationship in order to establish primary liability
under Section 10(b), especially where, as here, the
agency relationship is not based on the classic
corporation/employee model where a corporation can
only act through its employees and agents. ZCM, 332 F. Supp. 2d at 1106.
Plaintiffs allege that the Southridge Defendants had an agency
relationship with Michael Coglianese, whereby the Southridge
Defendants were principals and Coglianese was the agent. (R.
338-1; Pls.' Opp'n Dismissal Mot. Southridge Defs. at 6-9.)
According to Plaintiffs, the basis for this agency relationship
is as follows: (1) Coglianese had entered into a fee sharing
agreement ("Agreement") with the predecessor entity of
Southridge, which plaintiffs allege Southridge honored; (2) the
Southridge Defendants hired Coglianese as an "Affiliated
to provide monthly accounting services; and (3)
Southridge hired Coglianese "to perform consulting services as to
the in-house computer accounting system." (R. 251-1; Third Am.
Compl. at ¶¶ 204, 240, 242.)
Plaintiffs' agency allegations rely on the same circumstances
as are intertwined with their fraud allegations. Specifically,
Plaintiffs allege that Coglianese entered into the Agreement "in
part because he controlled the flow of money and other assets
from M.J. Select Global, Ltd. and was able to direct plaintiffs
investment funds from M.J. Select Global, LTD., through GAD, into
Dominion." (Id. at ¶ 242.) Plaintiffs also allege that
Coglianese "negotiated, procured, arranged and requested" the
Agreement so that he could "charge and receive illicit fees,
incentives and other compensation as herein alleged." (Id. at ¶
212.) Moreover, Plaintiffs rely on Coglianese's role as the
Southridge Defendants' accountant to establish that Coglianese
had the requisite scienter under 10b-5. (Id. at ¶ 240.) Because
Plaintiffs' agency allegations are intertwined with their fraud
allegations, Plaintiffs must plead agency with particularity.
See Lachmund, 191 F.3d at 783; ZCM, 332 F. Supp. 2d at 1106.
Plaintiffs have not adequately pled the existence and scope of
Coglianese's alleged agency relationship with the Southridge
Defendants as required under Rule 9(b). Plaintiffs allege that
"Coglianese was delegated and granted the authority by Dominion,
Southridge, Hicks and Pickett to procure investors for the funds
operated by Southridge, Hicks and Pickett" and that the
Southridge Defendants compensated Coglianese with a portion of
the management fees for that referral work. (R. 251-1; Third Am.
Compl. at ¶¶ 205, 207.) Plaintiffs, however, make no specific
allegations regarding the scope of Coglianese's authority under
the Agreement, nor do they allege that the Southridge Defendants
have power under the Agreement to control Coglianese.*fn5
Nor do Plaintiffs' allegations that Southridge hired Coglianese
as an "Affiliated Advisor" to provide accounting services
establish the existence of an agency relationship. Plaintiffs
have not sufficiently pled the scope of Coglianese's authority as
an accountant or whether the Southridge Defendants retained power
or control over Coglianese. Because Plaintiffs have not
sufficiently pled agency, Plaintiffs have not established that
Coglianese was an agent for the Southridge Defendants. B. Plaintiffs' Section 10(b) Claim For Securities Fraud
Count I is a securities fraud claim against the Southridge
Defendants pursuant to Section 10(b) of the Securities and
Exchange Act of 1934 and Rule 10b-5. The "basic elements" of a
Section 10(b) claim include: (1) a material misrepresentation or
omission, (2) "scienter, i.e., a wrongful state of mind," (3) a
connection with the purchase or sale of a security, (4)
"reliance, often referred to in cases involving public securities
markets (fraud-on-the-market cases) as `transaction causation,'"
(5) economic loss, and (6) loss causation. Dura Pharms., Inc. v.
Broudo, ___ U.S. ___, 125 S. Ct. 1627, 1631, 161 L.E.2d 577 (2005).
Because Plaintiffs rely exclusively on a theory of agency to
support their 10b-5 claim against the Southridge Defendants, and
Plaintiffs have not adequately alleged the existence of an agency
relationship, Plaintiffs fail to state a claim under 10b-5
against the Southridge Defendants. The Court, therefore, grants
the Southridge Defendants' motion as to Plaintiffs' 10b-5 claim.
C. Control Person Liability
Plaintiffs bring a claim under Section 20(a) of the Securities
Exchange Act against the Southridge Defendants as controlling
persons through the agency of Coglianese. (R. 251-1; Third Am.
Compl. at ¶ 273(d).) In order to state a Section 20(a) claim,
plaintiffs must allege the following: (1) a primary securities
violation; (2) each of the individual defendants exercised
general control over the operations of M.J. Select; and (3) each
of the individual defendants "possessed the power or ability to
control the specific transaction or activity upon which the
primary violation was predicated, whether or not that power was
exercised." See Harrison v. Dean Witter Reynolds, Inc.,
974 F.2d 873, 881 (7th Cir. 1992). Plaintiffs also allege control person liability under Section 48(a) of the Investment Company
Act of 1940. (R. 251-1; Third Am. Compl. at ¶ 313.)
Plaintiffs's control person liability claims rest on the
Southridge Defendants' agency relationship with Michael
Coglianese. They allege that the Southridge Defendants are liable
as control persons only "through the agency of Michael
Coglianese." (Id. at ¶ 273(d).) For the reasons discussed in
Section IIA, Plaintiffs have not sufficiently alleged the
existence of an agency relationship. Accordingly, their control
person claims fail and the Court grants the Southridge
Defendants' motion as to Plaintiffs' Section 20(a) and Section
D. Investment Company Act of 1940
Counts II and II-A seek rescission and recovery of damages
under an unjust enrichment theory pursuant to Section 47(b) of
the Investment Company Act of 1940 ("ICA"). 15 U.S.C. §§ 80a-7,
80a-46, 80a-47. Section 7(d) of the ICA provides that
No investment company, unless organized or otherwise
created under the laws of the United States or of a
State . . . shall make use of the mails or any means
or instrumentality of interstate commerce, directly
or indirectly, to offer for sale, sell, or deliver
after sale, in connection with a public offering, any
security of which such company is the issuer.
15 U.S.C. § 80a-7(d).
1. Count II
Plaintiffs have repled Count II, which the Court dismissed on
October 28, 2004. (R. 184-1; Oct. 28, 2004 Order.) Plaintiffs
have not moved the Court to reconsider its earlier
decision.*fn6 Therefore, for the reasons set forth in the Court's October 28,
2004 Order, the Court grants the Southridge Defendants' motion as
to Count II.
2. Count II-A
Plaintiffs have added Count II-A to their TAC in an attempt to
cure the pleading deficiencies of Count II. (R. 251-1; Third Am.
Compl. at ¶¶ 311-325.) In their newly pled Count II-A, Plaintiffs
allege that the Southridge Defendants are liable under the ICA
because they were "acting through their agent Coglianese." (Id.
at ¶ 324.) Because Plaintiffs base the Southridge Defendants'
liability on Coglianese's purported agency, and the Court finds
that Plaintiffs have not pled the existence of an agency
relationship, the Court grants the Southridge Defendants' motion
as to Count II-A.
III. State Law Claims
Plaintiffs assert state law claims of conspiracy to defraud,
common law fraud and violations of the Illinois Uniform
Fraudulent Transfer Act ("FTA") against Southridge, and bring
unjust enrichment and equitable accounting claims against
Southridge, Hicks and Pickett. Plaintiffs have alleged diversity
subject matter jurisdiction over these state law claims. (R.
2511-; Third Am. Compl. at ¶ 3.) The Southridge Defendants
challenge whether the Court has personal jurisdiction over them
with respect to Plaintiffs' state law claims.*fn7
A. Personal Jurisdiction Standards
Where the Court's subject matter jurisdiction is based on
diversity of citizenship, as in the present matter, the Court may exercise personal jurisdiction
over Defendants only if personal jurisdiction would be proper in
an Illinois court. See Hyatt Int'l Corp. v. Coco, 302 F.3d 707,
713 (7th Cir. 2002). Any exercise of jurisdiction over a
defendant must comport with state statutory law, state
constitutional law, and federal constitutional law. RAR,
107 F.3d at 1276. The Seventh Circuit has determined that "there is
no operative difference between the limits imposed by the
Illinois Constitution and the federal limitations on personal
jurisdiction." Hyatt, 302 F.3d at 715. Moreover, the catch-all
provision in the Illinois long-arm statute, 735 ILCS 5/2-209(c),
allows courts "to exercise jurisdiction on any basis permitted by
the Illinois and United States Constitutions." Central States,
Southeast & Southwest Areas Pension Fund v. Reimer Express World
Corp., 230 F.3d 934, 940 (7th Cir. 2000). Accordingly, the
Court may move directly to the federal constitutional inquiry,
namely, whether exercising personal jurisdiction over the
Southridge Defendants complies with federal due process
protections. See Hyatt, 302 F.3d at 714-15.
The federal test for personal jurisdiction requires that the
defendant must have minimum contacts with the forum state "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, 66 S. Ct. 154, 158,
90 L. Ed. 95 (1945) (citations omitted). "[I]t is essential in
each case that there be some act by which the defendant
purposefully avails itself of the privilege of conducting
activities within the forum State, thus invoking the benefits and
protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253,
78 S. Ct. 1228, 1240, 2 L. Ed. 2d 1283 (1958).
A federal court's exercise of personal jurisdiction over a
defendant may be either general or specific. Helicopteros
Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414-16,
104 S. Ct. 1868, 1872-73, 80 L. Ed. 2d 404 (1984). General jurisdiction
exists when the defendant has "continuous and systematic"
contacts with the forum state. Id. at 416, 104 S. Ct. at 1868.
Specific jurisdiction exists when the "litigation arises out of
or is related to [the defendant's contacts with the forum
state]." Logan Prods. v. Optibase, 103 F.3d 49, 52 (7th
Cir. 1996). Here, Plaintiffs only argue that specific
jurisdiction exists. (R. 338-1; Pls.' Opp'n Dismissal Mot.
Southridge Defs. at 10 n. 8.)
B. Personal Jurisdiction Analysis
Plaintiffs assert that the Court has jurisdiction over
Southridge through the actions of its purported agent,
Coglianese, and that the Court has jurisdiction over all of the
Southridge Defendants as a result of their contacts with
1. Coglianese's Agency
Under the Illinois long-arm statute, non-residents can submit
to the jurisdiction of an Illinois court through the acts of
their agents. 735 ILCS 5/2-209(a). The party asserting the agency
relationship bears the burden of showing the existence of an
agency relationship. Liberty Life Assurance Co. of Boston v.
Savage, No. 00 C 4117, 2001 WL 214204, at *3 (N.D. Ill. Mar. 2,
2001). Courts assessing whether agency allegations sufficiently
confer personal jurisdiction over an out-of-state party have
looked to whether the allegations establish that the purported
agent had the authority to legally bind the principal and whether
the principal could control the actions of the agent regarding
the matters entrusted to the agent. See id. (holding that the
court did not have personal jurisdiction over the alleged
principal where plaintiff had not shown that the purported agent had the authority to legally bind the
purported principal or that the purported principal could control
the purported agent); Gen. Accident Ins. Co. of Am. v. Old
Republic Int'l Corp., 648 F. Supp. 634, 637 (N.D. Ill. 1986)
(holding that party was not agent of corporate entities and did
not submit corporate entities to the jurisdiction of the court
where corporate entities had no right to control party). Here,
Plaintiffs have failed to allege that Coglianese had the
authority to legally bind Southridge or that Southridge retained
control over Coglianese's actions. Accordingly, Coglianese was
not an agent of Southridge for purposes of submitting Southridge
to the jurisdiction of the Court.
2. The Southridge Defendants' Actions
Plaintiffs are unable to establish that the Southridge
Defendants had sufficient contacts with Illinois to satisfy
federal due process standards. The federal test for personal
jurisdiction requires that the defendant have minimum contacts
with the forum state "such that the maintenance of the suit does
not offend `traditional notions of fair play and substantial
justice.'" International Shoe, 326 U.S. at 316,
66 S. Ct. at 158 (citations omitted). Plaintiffs allege that the Southridge
Defendants made the following contacts with Illinois: (1)
transferred funds to Coglianese, Gina Coglianese and GLC on at
least two occasions; (2) hired Coglianese to perform certain
accounting and computer consulting services for Southridge; (3)
hired Gina Coglianese, Commodity Compliance Services, Inc. and
CCS, Inc. to provide accounting services; and (4) had telephone,
facsimile, courier, and e-mail correspondence with Gina
Coglianese, Commodity Compliance Services, Inc. and CCS, Inc.
regarding their accounting work.*fn9 (R.251-1, Third Am. Compl. at ¶¶ 88-90.) Plaintiffs also allege that Southridge and
Hicks negotiated and entered into the Agreement with Coglianese.
(Id. at ¶¶ 88(a), 89(a).)
In essence, Plaintiffs put forth two connections with Illinois
the Agreement with Coglianese and Illinois accountants. The
fact that Coglianese, an Illinois resident, is a party to the
Agreement does not establish sufficient contacts between the
Southridge Defendants and Illinois to satisfy federal due process
standards. See Burger King Corp. v. Rudzewicz, 471 U.S. 462,
478-79, 105 S. Ct. 2174, 2185, 85 L. Ed. 2d 528 (1985) (stating
in dicta that forming one contract with an individual from the
forum state is not sufficient to subject the foreign party to the
jurisdiction of the forum state). Instead, the Court must look to
"prior negotiations and contemplated future consequences" to
determine whether the Southridge Defendants purposefully
established minimum contacts with Illinois. See, id. at 479,
105 S. Ct. at 2185. When the non-resident party does not initiate
the transaction, that fact "militat[es] against personal
jurisdiction." Madison Consulting Group v. South Carolina,
752 F.2d 1193, 1202 (7th Cir. 1985). Here, the Southridge
Defendants did not initiate the transaction. Plaintiffs allege
that Coglianese "procured, arranged and requested" the Agreement.
(R. 251-1; Third Am. Compl. at ¶ 212.) Also, Southridge was not
initially a party to the Agreement; instead, "a predecessor
entity to Southridge and Dominion" entered into the Agreement
with Coglianese. (Id. at ¶ 88(a).) Moreover, the only
performance of the Agreement by the Southridge Defendants in Illinois was the transfer of funds to Coglianese, Gina
Coglianese and GLC on two separate occasions. (Id. at ¶¶ 88(b),
89(b), 90(a).) "[T]he mere act of sending payments to Illinois is
insufficient to confer personal jurisdiction over non-resident
corporations." Gen. Accident Ins., 648 F. Supp. at 637. The
Court does not find that the Southridge Defendants purposefully
established minimum contacts with Illinois simply by upholding a
contract that the Southridge Defendants did not solicit or enter
into directly, and that did not require performance by the
Southridge Defendants in Illinois, other than to make payments.
See Burger King, 471 U.S. at 473-76, 105 S. Ct. at 2182-2184.
Nor do Plaintiffs' allegations regarding the provision of
accounting services by citizens of Illinois, and correspondence
related to that accounting work, establish sufficient contacts
with Illinois to satisfy federal due process standards.
Plaintiffs allege that the Southridge Defendants hired
Coglianese, Gina Coglianese, Commodity Compliance Services, Inc.
and CCS, Inc., all citizens of Illinois or Illinois Corporations,
to perform certain accounting functions for Southridge. (R.
251-1; Third Am. Compl. at ¶¶ 88-90.) Plaintiffs further allege
that the Southridge Defendants corresponded with their Illinois
accountants by telephone, facsimile, courier, and e-mail. (Id.
at ¶¶ 88(e), 89(e), 90(d).) The Southridge Defendants did not
purposefully avail themselves of the privilege of conducting
activities in Illinois and invoke the benefits and protection of
the law of Illinois simply by hiring Illinois-based accountants.
Hiring accountants in the forum state, without more, does not
provide the Southridge Defendants with a connection to Illinois
such that they "should reasonably anticipate being haled into
court there." World-Wide Volkswagen Corp. v. Woodson,
444 U.S. 286, 297, 100 S. Ct. 559, 567, 62 L. Ed. 2d 490 (1980). Because
Plaintiffs have not pled adequate contacts between the Southridge Defendants and Illinois to comply with federal due process
standards, the Court dismisses Plaintiffs' state law claims
against the Southridge Defendants. CONCLUSION
For these reasons, the Southridge Defendants' motion to dismiss
is granted. Plaintiffs have had four opportunities to plead their
case against the Southridge Defendants. In its previous opinions,
both in this case and in the ZCM case, the Court provided
Plaintiffs with ample guidance regarding what they must plead to
bring viable claims. After four tries, Plaintiffs have not cured
their pleading deficiencies, even though they have had more than
sufficient time and guidance to do so.
Rule 15(a) provides that a court should freely grant a party
leave to amend pleadings "when justice so requires."
Fed.R.Civ.P. 15(a). A court, however, need not provide plaintiffs with that
opportunity if the court finds undue delay, bad faith or dilatory
motive, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, or futility. Gen. Elec.
Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1085
(7th Cir. 1997). Here, Plaintiffs have had four opportunities
to plead their case, and detailed notice of their pleading
deficiencies. The Court also notes the tenuous connection of the
Southridge Defendants to this case. Therefore, the Court
dismisses Plaintiffs' claims against the Southridge Defendants
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