Neiman v. Rudolf Wolff & Co., Ltd.

• Decision Date: 22 May 1980
• Docket Number: Nos. 79-1622,79-1802,s. 79-1622
• Citation: 619 F.2d 1189
• Parties: David NEIMAN d/b/a London Group (1974), Plaintiff-Appellant, v. RUDOLF WOLFF & CO., LTD., James Gourlay and Ingleram Investments, Ltd., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1189

619 F.2d 1189

David NEIMAN d/b/a London Group (1974), Plaintiff-Appellant, v. RUDOLF WOLFF & CO., LTD., James Gourlay and Ingleram

Investments, Ltd., Defendants-Appellees.

Nos. 79-1622, 79-1802.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 15, 1980.

Decided April 23, 1980.

Rehearing and Rehearing En Banc Denied May 22, 1980.

William J. Harte, Chicago, Ill., for plaintiff-appellant.

Elliott Paskoff, New York City, Theodore J. Low, Chicago, Ill., for defendants-appellees.

Before CUMMINGS, SPRECHER, and TONE, Circuit Judges.

TONE, Circuit Judge.

This is a diversity action asserting claims arising out of silver transactions on the London Silver Market. Jurisdiction over the person of the defendants is asserted under the Illinois long-arm statute, Ill.Rev.Stat., ch. 110, § 17, applicable by virtue of Rule 4(e), Fed.R.Civ.P. Based on depositions, documents, and affidavits, the court dismissed the action for lack of jurisdiction, holding that the defendants' contacts with Illinois were insufficient to subject them to that state's jurisdiction. We reverse that decision with respect to two defendants.

Plaintiff David Neiman is a citizen of Illinois. Defendant Rudolf Wolff and Company, Ltd., is a United Kingdom corporation with its office in London. Defendant James Gourlay is a British citizen.

Wolff is in the business of trading in metals, including silver. It acts as broker and principal in transactions on the London Silver Market. It has had no connection with Illinois other than the events described below.

Gourlay, who lives and works in London, was formerly employed by Wolff and later was engaged in the business of advising and counseling with respect to metal trading. For purposes of the present appeal, the parties stipulate that Gourlay was acting as Wolff's agent with respect to the events involved in this case.

Plaintiff withdrew its claim against a third defendant, Ingleram Investments, Ltd., during oral argument in this court.

Because the district court has decided the defendants' motion solely on the basis of written materials, Neiman need only show a prima facie case for personal jurisdiction. O'Hare International Bank v. Hampton, 437 F.2d 1173, 1176 (7th Cir. 1971); Data Disc, Inc. v. Systems Technology Associates Inc., 557 F.2d 1280, 1285 & nn.1 & 2 (9th Cir. 1977). In addition, Neiman is entitled not only to the acceptance of all undenied factual assertions in his submissions, but also to the resolution in his favor of all disputes about relevant facts. United States Railway Equipment Co. v. Port Huron & Detroit Railroad, 495 F.2d 1127, 1128 (7th Cir. 1974); O'Hare International Bank v. Hampton, supra, 437 F.2d at 1176.

Some time in late 1973 or early 1974 Gourlay visited Chicago and called on William E. Casselman, a commodities broker, whom Gourlay had known in a prior business relationship. Casselman was with a Chicago firm called ACLI. After Casselman had asked Gourlay, whom he had not seen in a few years, what he was doing and Gourlay had responded that he was "working on a tax shelter program," Gourlay went on to say, according to Casselman's deposition testimony, "(W)e have devised a method of getting an interest deduction that looks . . . like it's a feasible situation." Gourlay explained the tax shelter program to Casselman and two or three of the latter's business associates in the ACLI firm. ¹ The device around which the program was built was known as a "cash-and-carry" transaction and was later explained by Gourlay in an affidavit filed in this case as follows:

A "cash-and-carry" transaction is a straddle in which one purchases a quantity of silver for immediate delivery; the purchase price is wholly financed by a third party financier in a nonrecourse loan secured by the purchased silver and repaid with the proceeds of the sale of that silver on the due date of the loan; and, the buyer at the time of the purchase immediately sells the silver for delivery on the loan's due date.

Casselman understood Gourlay to say that he contemplated that the cash-and-carry transactions he had in mind would be carried out through Wolff. According to Casselman, Gourlay also said that he and an associate had arranged financing for the transactions with I. Rochester, a Swiss banking firm. Thereafter, Casselman stated, he had several telephone conversations with Gourlay about the tax shelter program in which Gourlay supplied additional information.

During 1974 Casselman placed orders for various customers that resulted in approximately twenty-five cash-and-carry transactions. All were handled through Gourlay with Wolff, some were financed by I. Rochester, and some were actively solicited by Casselman. Marshall Persky, another ACLI broker to whom, according to Casselman, Gourlay explained the cash-and-carry transactions during his visit to Chicago, testified by way of deposition that he entered into cash-and-carry transactions through Gourlay in late 1973, 1974, and 1975. ²

In the summer of 1974 David Neiman approached Casselman to discuss the possibility of using silver trading as a tax shelter. Casselman told Neiman about the device Gourlay had worked out and answered many questions asked by Neiman about that device. Casselman also said that Gourlay was planning to be in Chicago in the fall of 1974 and could meet with Neiman. Neiman asked Casselman to arrange a meeting. Some time thereafter, and before the luncheon meeting that was ultimately held, Casselman gave Neiman a copy of the form of loan agreement used for the I. Rochester financing.

The luncheon meeting between Neiman, Gourlay, and Casselman was arranged for October 14, 1974, during a visit Gourlay was making to Chicago for other reasons. The accounts of the meeting presented in the depositions of Neiman and Casselman and the affidavit of Gourlay vary significantly. Neiman testified that in addition to asking many questions about the tax shelter device silver trading, the Wolff firm, and Gourlay's relationship to Wolff, Neiman discussed with Gourlay the I. Rochester loan agreement form and asked for two specific changes on the form, which Gourlay said could be made. ³ Neiman also testified that he and Gourlay discussed Wolff's commission rate, Neiman asking that it be reduced and Gourlay stating that it could not be reduced. Neiman concedes that no specific amounts of silver purchases were discussed but asserts that he did tell Gourlay that he would place substantial orders if the transactions could be handled as Gourlay had outlined.

Neiman also testified that after lunch, while he and Gourlay were sharing a taxicab, he told Gourlay that if the changes he wanted in the I. Rochester form of loan agreement were made, Neiman "thought we had a very large thing going."

Gourlay's version of the meeting, as stated in his affidavit, was that he explained the cash-and-carry transaction and "pointed out to Neiman that its attractiveness would depend on his individual financial and tax circumstances, and suggested that the situation could only be evaluated by him and his tax and financial advisers." Gourlay states that no proposals were made by any of the parties.

The version Casselman gave in his deposition was that Neiman asked many questions about the tax shelter device and silver trading. He could not recall any discussion about the loan agreement form or the nature of the Wolff firm and its business. Casselman testified that Gourlay did not solicit business from Neiman but merely answered his questions.

In November 1974 Neiman, in the name of "the London Group," placed four orders for cash-and-carry transactions with Gourlay. The orders were placed through Casselman, who by then had moved to Florida. During the next few months Neiman placed three more orders directly with Gourlay on behalf of the London Group. As a result of these orders seven cash-and-carry transactions were concluded on the London Silver Market for the purchase and sale for future delivery of a total of 16,601,000 ounces of silver. All the transactions were handled by Wolff and financed by I. Rochester in the manner Gourlay had described in his conversations with Casselman and his associates and in his conversation of October 14, 1974 with Casselman and Neiman. The purchases were confirmed by written confirmation notices sent by Wolff to Neiman. These are the transactions out of which the claims in suit arise.

Neiman has also presented evidence that Wolff, through Gourlay, had other contacts with Illinois during this period. Specifically, Ronald Richter testified by way of deposition about two meetings with Gourlay in Chicago, in October, 1974 and October, 1975. At these two meetings, each of which lasted less than an hour, Richter and Gourlay concluded cash-and-carry transactions involving $49 million worth of silver and option contracts for silver worth hundreds of millions of dollars. The terms of the cash-and-carry transactions had been worked out prior to the meeting, but Gourlay wanted to meet Richter and persons who knew Richter before concluding the transactions. In addition, smaller details were settled and the terms were perhaps clarified. Richter had only casually mentioned option contracts over the telephone prior to the meetings. Gourlay then successfully solicited Richter's business during their meetings.

Neiman's amended complaint alleges claims for breach of contract against Wolff and Gourlay and an alternative claim for breach of warranty of authority against Gourlay. Also alleged is a claim against both defendants for what is designated as "common law fraud" but is later described as a conspiracy "to deprive Neiman of the benefits of his contracts with Wolff." We consider first the issue of jurisdiction over the claims sounding in contract.

I.

Plaintiff's argument that, by reason of the events described above, Gourlay and Wolff were doing business in Illinois in 1974 in the traditional sense, requires little...