Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Virchow Krause Capital, LLC, N/K/A/ Baker Tilly Capital, LLC v. John H. North

January 17, 2012

VIRCHOW KRAUSE CAPITAL, LLC, N/K/A/ BAKER TILLY CAPITAL, LLC, PLAINTIFFS,
v.
JOHN H. NORTH, DEFENDANT.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Plaintiff Virchow Krause Capital, LLC n/k/a Baker Tilly Capital, LLC's (Baker) motion for a preliminary injunction. For the reasons stated below, the motion is granted.

BACKGROUND

Baker allegedly acted as a placement agent for an investment in subordinated notes issued by an entity known as KeyLime Cove of Gurnee, LLC (KeyLime). In April 2007, Defendant John H. North (North) allegedly entered into a contract to purchase notes from KeyLime (Purchase Contract) through Ausdal Financial Partners, Inc. (Ausdal). Baker asserts that it had no contact with North prior to North making his investment or during the actual investment process. Baker also contends that it is not a party to the Purchase Contract. In October 2009, KeyLime allegedly filed for bankruptcy. On August 29, 2011, North initiated arbitration proceedings (Arbitration Proceedings) by filing a Statement of Claim with the Financial Industry Regulatory Authority (FINRA) naming Ausdal and Baker as Respondents. Baker contends that it made a request to FINRA to deny North's request to arbitrate against Baker. FINRA allegedly denied the request. Baker asserts that it did not enter into any arbitration agreement with North and is not required to arbitrate the claims presented by North in the Arbitration Proceedings. Baker brought the instant action and includes in its complaint a claim seeking a declaratory judgment stating that it is not required to arbitrate the claims brought by North. Baker also includes in the complaint a claim seeking to enjoin North from proceeding against Baker in the Arbitration Proceedings. Baker now moves for a preliminary injunction.

DISCUSSION

I. Initial Requirements

A party seeking a preliminary injunction must initially establish: (1) "that absent a preliminary injunction, it will suffer irreparable harm in the interim period prior to final resolution of its claims," (2) "that traditional legal remedies would be inadequate," and (3) "that its claim has some likelihood of succeeding on the merits." Girl Scouts of Manitou Council, Inc. v. Girl Scouts of U.S. of America, Inc., 549 F.3d 1079, 1086 (7th Cir. 2008). If the moving party fails to satisfy any of the above elements, the court must deny the motion for a preliminary injunction. Id.

A. Irreparable Harm and Inadequate Remedy at Law

Baker contends that it will suffer irreparable harm and have an inadequate remedy at law if forced to participate in the Arbitration Proceedings. Baker contends that it never consented to arbitration. Forcing a party which did not consent to arbitration to participate in arbitration has been recognized per se as an irreparable harm. See, e.g., Interactive Brokers, LLC v. Duran, 2009 WL 393827, at *5 (N.D. Ill. 2009). In this case, if Baker is forced to participate in the Arbitration Proceedings and the court subsequently determines that Baker was not required to participate, some of the financial expenses incurred at the Arbitration Proceedings can be recovered. However, it will be difficult to calculate the loss to Baker in the form of time and inconvenience to Baker's representatives. In addition, the entire relief sought by Baker in this case is to prevent Baker from being forced to participate in the Arbitration Proceedings. If the court were to deny the motion for a preliminary injunction and Baker were forced to participate in the Arbitration Proceedings while this case proceeded, the claims in this case would largely become moot. Further, Baker would have no adequate remedy at law to rectify the harms it would suffer if forced to arbitrate unnecessarily. Thus, Baker has shown irreparable harm and inadequate remedy at law.

B. Likelihood of Success on the Merits

Baker contends that it has a likelihood of success on the merits. For the purposes of a preliminary injunction motion, as indicated above, the movant need only make a showing of some likelihood of success on the merits. Girl Scouts, 549 F.3d at 1086. The movant bears the initial burden of making a clear showing that it is entitled to prevail on the merits, which can be established by showing that the movant has "a better than negligible chance of succeeding on the merits. . . ." Chicago Dist. Council of Carpenters Pension Fund v. K & I Construction, Inc., 270 F.3d 1060, 1064 (7th Cir. 2001).

Baker argues that it is not required to submit to arbitration under the FINRA Code of Arbitration Procedure for Customer Disputes (FINRA Code) because it did not have a customer relationship with North. FINRA Code Rule 12200 provides in part that arbitration is required when it is "requested by the customer." Rule 12200. The only elaboration as to the term "customer" in the FINRA Code is FINRA Code Rule 12100(i), which states that "[a] customer shall not include a broker or dealer." FINRA Code Rule 12100(i); see also Interactive Brokers, LLC v. Duran, 2009 WL 393827, at *1 (N.D. Ill. 2009)(explaining that "FINRA is the primary regulator of broker dealers in the United States").

Baker cites Berthel Fisher & Co. Financial Services, Inc. v. Larmon, 2011 WL 3294682 (D. Minn. 2011), in which the court held that investors "can arbitrate their claims against [entities], with whom they dealt directly; but they cannot fold into the arbitrations claims against other entities with whom they have no direct relationship." Id. at *5; see also Legent Clearing, LLC v. Balistreri, 2009 WL 2567947, at *3 (N.D. Ill. 2009)(stating that in assessing whether the plaintiff was a customer it considered whether the plaintiff made "independent investment decisions"); Interactive, 2009 WL 393827, at *1 (stating that the defendants did "not qualify as 'customers' under Rule 12200 by virtue of being 'customers of a customer'").

North cites UBS Financial Services, Inc. v. West Virginia University Hospitals, Inc., 660 F.3d 643 (2nd Cir. 2011), in which the court held that "a definition of customer . . . at least includes an entity that undertakes to purchase a good or service," such as "contracting . . . to obtain auction services for a fee." Id. at 650. In this case, Baker contends that it had only limited contacts with North and that its contacts did not occur before or when North invested ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.