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Traderight Securities, Inc. v. Kirschman

August 26, 2010

TRADERIGHT SECURITIES, INC., GEORGE DRAGEL, MICHAEL RUKUJZO, AND CHRISTOPHER R. WURTZINGER, PLAINTIFFS,
v.
RICHARD G. KIRSCHMAN IRA, DENISE J. KIRSCHMAN IRA, AND RICHARD G. KIRSCHMAN AS TRUSTEE OF THE KIRSCHMAN LIVING TRUST; AND JIMMY RAYFORD GIBSON, INDIVIDUALLY AND ON BEHALF OF THE JIMMY RAYFORD GIBSON IRA, DEFENDANTS.



The opinion of the court was delivered by: Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER

Plaintiffs Traderight Securities, Inc. ("Traderight"), George Dragel ("Dragel"), Michael Rukujzo ("Rukujzo"), and Christopher R. Wurtzinger ("Wurtzinger") have filed a two-count complaint seeking declaratory and injunctive relief against pro se defendants Richard G. Kirschman ("Richard"), Denise J. Kirschman ("Denise"), and Jimmy Rayford Gibson ("Gibson"). Defendants have moved to dismiss for lack of personal jurisdiction. For the reasons discussed below, defendants' motion to dismiss is denied.

FACTS

"[T]he court must accept all allegations of the complaint as true except those controverted by defendants' affidavits; any conflict in affidavits must be resolved in favor of the plaintiff." Northwestern Corp. v. Gabriel Mfg. Co., Inc., 1996 WL 73622, at *2 (N.D. Ill. Feb. 16, 1996) (citing Turncock v. Cope, 816 F.2d 332, 333 (7th Cir. 1987)). Defendants are investors who claim to have been defrauded by Enterprise Trust Company ("Enterprise").*fn1 To recover their losses, defendants instituted arbitration proceedings before the Financial Industry Regulatory Authority (the "FINRA") against Enterprise's founders and executives and against four brokerage firms, including Traderight, alleging that the brokerage firms aided and abetted Enterprise's fraud.*fn2

Traderight is a securities broker-dealer at which Enterprise held one or more accounts and through which Enterprise purchased and sold securities. Dragel, Rukujzo, and Wurtzinger are allegedly "supervisors and control persons" of Traderight. Traderight alleges that it executed non-discretionary trades submitted by Enterprise and did not give trading advice or recommendations. Defendants allege that Traderight negligently failed to exercise appropriate supervision over Enterprise's accounts in violation of common law and state Blue Sky statutes, and that Dragel, Rukujzo, and Wurtzinger negligently failed to take steps to detect, prevent, and report Enterprise's fraud.

The instant case pertains to the existence and scope of plaintiffs' duty to defendants and whether this issue is properly subject to arbitration. Plaintiffs allege that they had no relationship with defendants, contractual or otherwise, and no agreement to arbitrate. Thus, plaintiffs argue that they owed no duty to defendants and cannot be held liable for their alleged harm. Plaintiffs further argue that defendants cannot require them to arbitrate the parties' dispute. Plaintiffs seek a declaration of their rights and obligations with respect to defendants as well as preliminary and permanent injunctions restraining defendants from pursuing claims against plaintiffs in the arbitration proceedings before the FINRA.

DISCUSSION

Legal Standard

Plaintiffs bear the burden of establishing a prima facie case of personal jurisdiction. Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 713 (7th Cir. 2002). When ruling on a motion to dismiss for lack of personal jurisdiction, the court may rely on evidence outside the pleadings, such as affidavits and declarations. See Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). The court must resolve all factual disputes in plaintiffs' favor. See Nelson v. Park Indus., Inc., 717 F.2d 1120, 1123 (7th Cir. 1983).

Analysis*fn3

This court has jurisdiction over a non-resident, non-consenting defendant in a diversity case if Illinois state courts would have jurisdiction.*fn4 Purdue, 338 F.3d at 779. An Illinois state court has personal jurisdiction when authorized by: (1) the Illinois long-arm statute; (2) the Illinois Constitution; and (3) the Due Process Clause of the Federal Constitution. Central States, Southeast & Southwest Areas Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 939 (7th Cir. 2000).

The Illinois long arm statute explicitly grants jurisdiction over a defendant engaging in "[t]he making or performance of any contract or promise substantially connected with this State" or "[t]he ownership of an interest in any trust administered within this State." 735 ILCS 5/2-209(a)(7), (13). Defendants in the instant case opened and maintained trust accounts with Enterprise, administered in Illinois. Gibson also entered into Private Portfolio Investment Agency Agreements with Enterprise, governing his accounts in Illinois.

Illinois' long-arm statute contains a "catch-all" provision, authorizing courts to exercise jurisdiction to the fullest extent allowed by the Illinois and federal Constitutions. 735 ILCS 5/2-209©; Hyatt, 302 F.3d at 714. Because there is no "operative difference" between the limits imposed by the Illinois Constitution and the federal limitations on personal jurisdiction, the inquiry collapses into an examination of whether jurisdiction over defendants complies with the test as set forth in International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945), which requires that defendants have minimum contacts with Illinois "such that maintenance of the suit does not offend traditional notions of fair play and substantial justice."

How that standard is applied depends on whether a plaintiff is asserting "general" or "specific" jurisdiction. "General jurisdiction is appropriate where the defendant's contacts with the forum state are 'continuous and systematic.'" Citadel Group Ltd. v. Wash. Reg'l Med. Ctr., 536 F.3d 757, 760 n.3 (7th Cir. 2008) (quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416 (1984)). Specific jurisdiction applies where the suit "arises out of or is ...


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