906 F.2d 276 (7th Cir. 1990), 88-2716, Heritage House Restaurants, Inc. v. Continental Funding Group, Inc.

Docket Nº:88-2716.
Citation:906 F.2d 276
Party Name:HERITAGE HOUSE RESTAURANTS, INC., Heritage House Smorgasbord of Oklahoma City, and Heritage House of Indianapolis, Plaintiffs-Appellants, v. CONTINENTAL FUNDING GROUP, INC., Defendant-Appellee.
Case Date:July 02, 1990
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 276

906 F.2d 276 (7th Cir. 1990)

HERITAGE HOUSE RESTAURANTS, INC., Heritage House Smorgasbord

of Oklahoma City, and Heritage House of

Indianapolis, Plaintiffs-Appellants,

v.

CONTINENTAL FUNDING GROUP, INC., Defendant-Appellee.

No. 88-2716.

United States Court of Appeals, Seventh Circuit

July 2, 1990

Page 277

[Copyrighted Material Omitted]

Submitted Jan. 31, 1990.[*]

Page 278

Tom Schanzle-Haskins, Bridget E. Madigan, Giffin, Winning, Cohen & Bodewes, Springfield, Ill., for plaintiffs-appellants.

David Niebauer, Gold & Wachtel, New York City, James Craven, Springfield, Ill., for defendant-appellee.

Before COFFEY, EASTERBROOK, and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

Plaintiffs-appellants Heritage House Restaurants, Heritage House Smorgasbord of Oklahoma City, and Heritage House of Indianapolis (hereafter collectively "Heritage House") appeal from the district court's dismissal of their second amended complaint for lack of personal jurisdiction over defendant-appellee Continental Funding Group, Inc. (Continental). For the reasons stated below, we reverse.

I

BACKGROUND

Heritage House's second amended complaint and the three affidavits it submitted to the district court established the following facts relevant to the issue of jurisdiction: Appellants are two limited partnerships and a corporation which is a general partner in both limited partnerships. The corporation and both partnerships were established under the laws of Illinois and have their principal place of business in Illinois. Heritage House's complaint states four counts against Continental: negligent misrepresentation, breach of contract, agency liability, and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. Heritage House Restaurants, Inc. (the corporation) invests money for the two limited partnerships. In May, 1984, the comptroller of the corporation, Joseph Kula, received a letter, at Heritage House's office in Springfield, Illinois, from Continental, 1 offering to assist Heritage House in finding high yield rates for their funds and depositing their monies in such accounts. According to the letter, when a company has available funds for deposit, it telephones Continental (at a toll-free number) to receive the latest rates, and Continental gives the company the name of a bank and instructions for wiring the money to that bank. Kula answered the letter with a request for references. Continental soon after mailed these references to Kula in Illinois. Continental listed four Illinois organizations as references, and, upon calling these entities, Kula learned that they all used Continental for investment advice. For a little over a year from that time, Kula used the services of Continental to receive information on interest rates. Kula then left his employment with Heritage House.

Soon after Kula left Heritage House, Continental contacted the senior accountant of Heritage House Restaurants, Inc., Valerie Ausmus, 2 to inquire whether Heritage House wanted to renew two certificates of deposit (one for each of the limited partnerships) that were on deposit at Guaranty Savings & Loan in Arkansas. Ausmus had not contacted Continental prior to this occasion. During this conversation, Ausmus told Continental that, rather than renewing the deposits at their current amounts of $100,000, Heritage House could only renew them at $75,000 each. Continental informed her that it did not handle deposits of less than $100,000, but that Heritage House could combine the certificates into one $150,000 deposit. After discussing the transaction with her superiors, Ausmus called Continental to inquire whether a $150,000 deposit would be insured, and was informed that payment would be guaranteed because the Savings & Loan collateralized any deposit over $100,000 with its securities. Continental also stated that it had other clients with deposits larger than $100,000 at that bank

Page 279

and that it used that bank for that reason. After again speaking with her superiors, Ausmus informed Continental that Heritage House wished to withdraw the funds because of its uncertainty regarding the investment, but Continental again assured her that there would be no problem. Continental informed Ausmus that it would send a confirmation in the mail. Ausmus did not deal directly with the Savings & Loan; Continental handled the transaction.

Approximately one month later, the Savings & Loan was declared insolvent and placed in receivership for liquidation by the Federal Savings and Loan Insurance Corporation (FSLIC). Ausmus called Continental to inquire into the matter and was told there would be no problems with repayment. When Heritage House was reimbursed for its deposit, it received only $100,000, which was the amount insured by the FSLIC. The remaining $50,719.18 balance is the subject of this action.

II

ANALYSIS

In diversity cases, federal district courts have personal jurisdiction over parties when a court of the state in which the district court sits has personal jurisdiction. See Turnock v. Cope, 816 F.2d 332, 334 (7th Cir.1987); Giotis v. Apollo of the Ozarks, Inc., 800 F.2d 660, 664 (7th Cir.1986), cert. denied, 479 U.S. 1092, 107 S.Ct. 1303, 94 L.Ed.2d 158 (1987); Deluxe Ice Cream Co. v. R.C.H. Tool Corp., 726 F.2d 1209, 1212 (7th Cir.1984). Nonresident corporations are subject to the jurisdiction of Illinois courts if they fall under one of the provisions of the Illinois long-arm statute. Deluxe Ice Cream Co., 726 F.2d at 1212. 3 The relevant provisions of the Illinois long-arm statute state:

(a) Any person, whether or not a citizen or resident of this State, who in person or through an agent does any of the acts hereinafter enumerated, thereby submits such person ... to the jurisdiction of the courts of this State as to any cause of action arising from the doing of such acts:

(1) The transaction of any business within this State;

(2) The commission of a tortious act within this State;

* * * * * *

(c) Only causes of action arising from acts enumerated herein may be asserted against a defendant in an action in which jurisdiction over him or her is based upon this Section.

Ill.Rev.Stat. ch. 110, p 2-209(a, c). 4 Each cause of action alleged must independently arise from one of the enumerated acts. Club Assistance Program, Inc. v. Zukerman, 594 F.Supp. 341, 345 (N.D.Ill.1984) (citing Mergenthaler Linotype Co. v. Leonard Storch Enterprises, Inc., 66 Ill.App.3d 789, 23 Ill.Dec. 352, 361, 383 N.E.2d 1379, 1387 (Ill.App.Ct.1978)). Once a court has determined that jurisdiction exists under the long-arm statute, it must also ensure that constitutional due process requirements would not be violated by exercising jurisdiction over the nonresident defendant. Id. at 348.

  1. Illinois Long-Arm Statute

    1. Sec. 2-209(a)(1): transacting business in Illinois

    The district court held 5 that the initial mailing Continental sent to Heritage

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    House in Illinois and the various telephone conversations with Heritage House employees in Illinois were not sufficient to constitute the transaction of business in Illinois under the statute. We respectfully disagree.

    To be subject to Sec. 2-209(a)(1), the nonresident defendant must have transacted business which gives rise to the cause of action alleged by plaintiff. See Ill.Rev.Stat. ch. 110, p 2-209(c); J. Walker & Sons v. DeMert & Dougherty, Inc., 821 F.2d 399, 401 (7th Cir.1987); Deluxe Ice Cream Co., 726 F.2d at 1214; Arthur Young & Co., et al. v. Bremer, 197 Ill.App.3d 30, 143 Ill.Dec. 736, 740, 554 N.E.2d 671, 675 (1990). First, we conclude that Heritage House sufficiently alleged that Continental transacted business in Illinois.

    A defendant transacts business in Illinois when substantial performance of contractual duties is to be rendered in Illinois or when a defendant invokes the benefits and protections of Illinois law in the contractual relationship. When a contract which is the basis of plaintiff's claim was entered into in Illinois, the defendant's Illinois activities can suffice to sustain jurisdiction. Nonetheless, the determination of whether a...

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