Abn Amro, Inc. v. Capital Intern. Ltd.

Decision Date16 September 2008
Docket NumberCase No. 04-CV-3123.
Citation595 F.Supp.2d 805
PartiesABN AMRO, INCORPORATED, Plaintiff, v. CAPITAL INTERNATIONAL LIMITED, Eirles Four Limited, Deutsche Bank Aktiengesellschaft, Sarco Holdings, and Dhananjay (Dan) Hajela, Defendants.
CourtU.S. District Court — Northern District of Illinois

Stephen Patrick Bedell, Miki Vucic Tesija, Thomas Paul Krebs, Foley & Lardner, Chicago, IL, for Plaintiff.

James R. Figliulo, Gregory L. Stelzer, Peter A. Silverman, Figliulo & Silverman, Jerrold E. Salzman, Skadden Arps Slate Meagher & Flom, LLP, Joseph R. Derbis, Phillip Leon Stern, Scott A. Browdy, Neal Gerber & Eisenberg LLP, Richard P. Campbell, Jenner & Block LLP, Gino L. Divito, John Matthew Fitzgerald, Mark H. Horwitch, Tabet Divito & Rothstein LLC, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

ROBERT M. DOW, JR., District Judge.

On November 1, 2005, ABN AMRO, Inc. ("ABN") filed a first amended complaint [85] against Deutsche Bank Aktiengesellschaft ("Deutsche Bank"), Eirles Four Limited ("Eirles"), Capital International Limited ("Capital"), Sarco Holdings ("Sarco"), and Dhananjay Hajela ("Hajela"), alleging securities fraud and other state and federal claims in connection with a chain of back-to-back sales of secured notes issued by Eirles ("Series 42 Notes"). ABN claims that Defendants' collective omission of material information about the Series 42 Notes—specifically, that there was an absolute restriction on their sale within the United States or to a U.S. person—led to ABN's purchase of the Notes, and that ABN suffered $44 million in damages because of this omission. The ten-count Complaint alleges violations of federal and state securities laws (Counts I, II, III, and IV), common law fraud (Count V), violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (Count VI), unjust enrichment (Count VII), negligent misrepresentation (Counts VIII and IX), and "alter ego liability" (Count X).

Eirles, as well as Sarco and Hajela ("Sarco/Hajela"), have filed motions to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2) [127, 166]. Eirles and Deutsche Bank ("Eirles/Deutsche Bank") and Sarco/Hajela also have filed motions to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) [124, 163]. Capital has filed an answer [123] to the first amended complaint and is not subject to this opinion. For the reasons discussed below, the Court finds that it has personal jurisdiction over all of the nonresident Defendants. The Court also finds that Plaintiff has adequately stated a claim on all counts of its first amended complaint. Therefore, the Court respectfully denies Defendants' motions to dismiss.

I. Factual Background1

This case arose out of the alleged botched sale of the Series 42 Notes, worth an estimated $105 million. FAC ¶¶ 1, 5. The Notes were to be issued by Eirles and its issuing agent, Deutsche Bank, and Plaintiff alleges that Sarco acted as Deutsche Bank and Eirles' sales agent to arrange purchasers for the Notes. Id. ¶ 1. According to the original plan for the issuance, Eirles and Deutsche Bank were to issue the Notes to Capital, a broker-dealer in the Isle of Man, which was to distribute the Notes to ABN. Id. ¶ 5. ABN then planned to sell the Notes to its customer, Hopewell Capital Group, Inc. ("Hopewell"), a U.S. broker-dealer, which planned to sell them to Sterling Capital Management ("Sterling"), another U.S. broker-dealer, and other end purchasers. Id.

Initially, ABN planned to act only as a clearing agent in the transaction. Id. ¶ 3. At Capital's insistence, however, ABN agreed to act as a principal for Hopewell, guaranteeing Hopewell's purchase of the Series 42 Notes, because neither Capital nor Hopewell could afford to finance the transaction. Id.

All parties to the transaction allegedly agreed that ABN would act as a "riskless principal," which meant it would serve only as a "pass through" for the Notes between Capital and Hopewell. Id. ABN expected its role to be minimal—allegedly little more than that of a clearing broker. Id. ABN's only interest in the transaction was the payment of a regular clearing fee. Id. ABN entered into a Principal Letter Agreement with Capital, which ABN alleges confirmed that the Series 42 Notes were exempted securities, and ABN also received copies of term sheets drafted by Deutsche Bank. Id. ¶ 4. ABN alleges that none of the documentation ABN received regarding the Notes mentioned any restrictions on the sale of the Notes. Id.

The Series 42 Notes were issued on July 15, 2003, and on that same day were distributed from Eirles to Deutsche Bank, through Capital, to ABN in a series of virtually simultaneous transactions. Id. ¶ 5. However, the remaining parties in the chain of distribution reneged on the deal, and ABN was left holding the Notes, for which it had paid $97.9 million. Id. Weeks after the deal fell through, while ABN was working with Hopewell and others to arrange for another buyer of the Notes, ABN received for the first time a copy of a Series 42 Supplemental Programme Memorandum, which governed the Series 42 Notes. Id. ¶ 6. ABN alleges that the original Programme Memorandum contemplated sales of the Notes in the United States. Id. ¶ 9. The Supplemental Memorandum, however, allegedly revealed to ABN for the first time that the Series 42 Notes were restricted from being "offered, sold, resold, delivered or transferred within the United States or to, or for the account or benefit of, U.S. persons." Id. ¶ 6. ABN alleges that it would not have participated in the transaction if it had been aware of this "absolute restriction." Id. ¶ 7. After much difficulty, ABN ultimately sold the Notes for forty-seven cents on the dollar, resulting in a loss exceeding $44 million. Id.

ABN commenced this action against Eirles and Capital for alleged violations of Sections 5 and 12 of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77e(a), 77e(c), and 77l(a)(1), among other claims. Id. ¶ 8. ABN also filed suit in state court against Hopewell, Sterling, and their principals. Id. During jurisdictional discovery in the federal case, ABN alleges that it discovered a larger fraudulent scheme by Eirles, Deutsche Bank, Capital, Sarco, and Sarco's sole shareholder, officer, and director, Dan Hajela. Id. In its first amended complaint, ABN alleges that, from the inception of the transaction to its completion, Eirles and Deutsche Bank, and their agents Capital and Sarco, engaged in a fraudulent scheme to distribute the Series 42 Notes into the United States without disclosing the relevant absolute prohibition on such distribution. Id. ¶ 12

II. Discussion of Rule 12(b)(2) Motions to Dismiss for Lack of Personal Jurisdiction
A. Legal Standards

In a motion to dismiss claims under Rule 12(b)(2), "[t]he plaintiff bears the burden of demonstrating personal jurisdiction." Central States, S.E. & S.W. Areas Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 939 (7th Cir. 2000) (citing RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir.1997)). The Court draws all reasonable inferences consistent with the complaint in the plaintiff's favor. See Quantum Color Graphics, LLC v. Fan Ass'n Event Photo GmbH, 185 F.Supp.2d 897, 904 (N.D.Ill.2002) (citing Sapperstein v. Hager, 188 F.3d 852, 855 (7th Cir.1999)).

When the Court rules on a defendant's motion to dismiss for lack of personal jurisdiction based on the submission of written materials, "the plaintiff need only make out a prima facie case of personal jurisdiction," Purdue Research Foundation v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir.2003) (collecting cases; internal quotations omitted), but the Court may consider affidavits submitted by the parties, see, e.g., RAR, Inc., 107 F.3d at 1275; Zurich Capital Mkts. v. Coglianese, 388 F.Supp.2d 847, 855 (N.D.Ill.2004). In fact, if the defendant submits affidavits or other evidence in opposition, "the plaintiff must go beyond the pleadings and submit affirmative evidence supporting the exercise of jurisdiction." Purdue Research, 338 F.3d at 783. The Seventh Circuit instructs that "[i]n evaluating whether the prima facie standard has been satisfied, the plaintiff `is entitled to the resolution in its favor of all disputes concerning relevant facts presented in the record.'" Id. at 782 (quoting Nelson v. Park Indus., Inc., 717 F.2d 1120, 1123 (7th Cir.1983)). "Any conflicts in the pleadings and affidavits are to be resolved in the plaintiffs' favor, but the court accepts as true any facts contained in the defendants' affidavits that remain unrefuted by the plaintiffs." Interlease Aviation Investors II (Aloha) L.L.C. v. Vanguard Airlines, Inc., 262 F.Supp.2d 898, 904 n. 3 & 905 (N.D.Ill.2003) (collecting cases); accord, e.g., RAR, Inc., 107 F.3d at 1276.

B. Prima Facie Showing of Personal Jurisdiction
1. General principles of personal jurisdiction

This case involves both federal and state claims. The Seventh Circuit has held that in federal question cases, a plaintiff must establish two things to demonstrate personal jurisdiction over a defendant. In cases involving statutes that provide for nationwide service of process, the plaintiff must demonstrate that (i) haling the defendant into court accords with the Due Process Clause of the Fifth Amendment, and (ii) the defendant is amenable to service of process from the court. See, e.g., United States v. De Ortiz, 910 F.2d 376, 381-82 (7th Cir.1990) (citation omitted); see also Perry v. Delaney, 5 F.Supp.2d 617, 619 (C.D.Ill.1998); Lifeway Foods, Inc. v. Fresh Made, Inc., 940 F.Supp. 1316, 1318 (N.D.Ill.1996).

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