Adair v. Hunt Intern. Resources Corp.
| Decision Date | 18 November 1981 |
| Docket Number | No. 79 C 4206.,79 C 4206. |
| Citation | 526 F. Supp. 736 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | Jean and Patricia ADAIR, et al., Plaintiffs, v. HUNT INTERNATIONAL RESOURCES CORPORATION, Great Western United Corporation, Great Western Cities, Inc., Colorado City Development Company, Colorado City Realty Company, William M. White, Jr., W. H. Hunt, and N. B. Hunt, Defendants. |
COPYRIGHT MATERIAL OMITTED
John M. Bowlus, Ellen J. Morgan, Cotton, Watt, Jones, King & Bowlus, Chicago, Ill., for plaintiffs.
Samuel K. Skinner, James R. Stinson, Sally Ortner, Sidley & Austin, Chicago, Ill., Daniel P. Garcia, Cary B. Lerman, Lucy T. Eisenberg, Munger, Tolles & Rickershauser, Los Angeles, Cal., for Great Western defendants.
This is an action seeking relief on behalf of approximately 1300 individual plaintiffs who allegedly were defrauded into purchasing worthless parcels of land in a planned community development called Colorado City, Colorado. Colorado City was to be developed by defendant, Great Western Cities, Inc. ("GWC") and its related corporate entities, Great Western United Corp. ("GWU"), Hunt International Resources Corp. ("HIRCO"), Colorado City Development Company ("CCDC"), and Colorado City Realty Company ("CCRC"). All of these corporate entities are part of the financial empire of Nelson Bunker Hunt and William Herbert Hunt, who are also named as defendants herein. Presently pending before the court is a barrage of pleading motions filed by the various defendants attacking the procedural and substantive sufficiency of the Second Amended Complaint. That complaint contains six counts, alleging violations of the Organized Crime Control Act ("OCCA"), 18 U.S.C. § 1961 et seq., (Count I); sections 17(a) of the Securities Act of 1933 (the "Securities Act") and 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., (the "Exchange Act"), 15 U.S.C. § 77a et seq., (Count II); section 12(2) of the Securities Act, (Count III); the Interstate Land Sales Full Disclosure Act ("interstate Land Sales Act"), 15 U.S.C. § 1701 et seq., (Counts IV and V); and the Illinois Land Sales Act ("ILSA"), Ill.Rev. Stat. ch. 30, § 371 et seq. (Count VI).
The pending motions raise, inter alia, claims of improper venue, forum non-conveniens, failure to plead fraud with the requisite particularity under Rule 9(b) of the Federal Rules of Civil Procedure ("FRCP"), lack of personal jurisdiction, and failure to state a cause of action. In addition, the Great Western City defendants1 have moved for an order prohibiting unauthorized communications between plaintiffs' counsel and potential Colorado City claimants. For the reasons set forth below, the motions are decided as follows: (1) The motions for a more definite statement are granted and plaintiffs are directed to file a new Amended Complaint by July 15, 1981; (2) The resolution of the Hunt defendants' motions to dismiss for lack of in personam jurisdiction is deferred pending the filing of the more detailed amended complaint; (3) The motions to transfer are denied; (4) The motions to dismiss for improper venue are denied; (5) The motions to dismiss Counts I and VI are granted, without leave to amend; and (6) The motions to dismiss Counts III and V are granted with leave to amend. The court does not, herein, reach the unauthorized communications motion.
On May 13, 1980, Judge Bua granted plaintiffs leave to file a Second Amended Complaint.2 At the same time, he provided defendants with the opportunity to raise objections to his order in the form of a motion to reconsider. The Great Western defendants have availed themselves of this opportunity, raising three arguments in opposition to the filing of the complaint. They contend that leave to amend should have been denied because the Amendment has been unduly delayed, it will result in substantial prejudice to defendants, and it attempts to join parties for whom venue in this district is improper. None of these arguments has any merit.
Rule 15(a) of the Federal Rules of Civil Procedure states that leave to amend a complaint "shall be freely given when justice so requires." The Supreme Court has noted in this regard that the liberal amendment policy embodied in the Rule is "a mandate to be heeded." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). Although the rule gives litigants neither an unqualified right nor the unfettered discretion to expand the scope of an action, the Second Amended Complaint does not result in the degree of prejudice nor is it the product of such undue delay that might warrant denying leave to amend. This supplemental pleading was filed only seven months after the opening of the lawsuit and prior to the initiation of any extensive discovery. It asserts no new legal theories which might cause undue surprise to the defendants but, rather, only adds the individual claims of approximately 675 new plaintiffs, most of whom are Colorado residents (as distinguished from the 700 Illinois residents presently a part of this action).3 That the addition of new individual claimants might marginally lengthen a potential trial is no reason to deny the amendment, particularly where, as here, there is a substantial identity of legal and factual issues between the claims of the "new" and present claimants.4 In short, the only real prejudice resulting from the amendment is defendants' increased exposure to potential liability. This, however, is hardly the type of prejudice which can be considered "undue".
Defendants' final argument — that leave to amend should have been denied because venue over the claims of the Colorado plaintiffs is improper — is similarly without merit.5 Defendants concede that venue is proper in this forum over the claims of the Illinois plaintiffs but point to the fact that the after-added claimants reside in Colorado and probably purchased their lots in that state. While these facts might be relevant to a motion to transfer pursuant to 28 U.S.C. § 1404(a), they lose their significance here where venue is premised on the special venue provisions of the Interstate Land Sales Act and the Securities Laws.
All of the venue provisions relied on by plaintiffs essentially parallel each other. That is, they all provide for venue in a particular forum regardless of defendants' or plaintiffs' residence if the defendants "transact business" within the district. 15 U.S.C. § 78aa, 15 U.S.C. § 77v, 15 U.S.C. § 1719.6 Unlike the familiar "minimum contacts" test used to determine personal jurisdiction, these liberal special venue provisions do not require that the activities used to establish venue be "related" or "connected" to the transaction attacked in the complaint. Thus, the fact that Ifuku consummated his purchase in Hawaii or that a Colorado plaintiff bought his land in Colorado does not necessarily defeat venue in Illinois provided that it can be established that the defendants also transact business within this forum.
The facts presented to the court confirm that the defendants do indeed transact business within Illinois. Defendants GWC, GWU, CCDC, and CCRD are licensed to do business in Illinois. Each has obtained a certificate of authority to do business in this state, which have not been revoked either by the corporations themselves or by the State of Illinois. Each of the corporations has filed an Annual Report with the State of Illinois as required by the Foreign Corporations Act. Ill.Rev.Stat. ch. 32, § 157.115. Still further, CCDC, CCRC and GWC all have retained a registered agent authorized to accept service of process for them within the state, and in this case, service was made upon that agent.
Just as persuasive as evidence that the defendants are doing business in Illinois are documents submitted by plaintiffs indicating that the corporations continue to mail into Illinois notices of late payments as well as bills to collect payments from Illinois residents for the property purchased from GWC. To assert, as GWC and its related entities do, that they no longer transact business within the state because they no longer make sales in Chicago and have closed their Chicago office assumes too narrow a characterization of the nature of their business. The Great Western defendants' business cannot realistically be limited solely to the solicitation of sales of Colorado City lots. Rather, their "business" includes both the securing of real estate sales agreements, which was previously actively pursued in this state, and the continuing active pursuit of payment on those sales. To claim that mailing into Illinois in these circumstances constitutes the transaction of business elsewhere, but not in Illinois, is to ignore the economic reality that the collection efforts are a continuation of the sales activities which indisputably took place within Illinois.7
The fact that at least some of the defendants may be said to transact business in Illinois establishes proper venue with respect to all of them. The liberal venue provisions of the federal statutes at issue here are part of a broader legislative framework to prosecute frauds which, more often than not, are national in scope. As the court in In re Penn Central Securities Litigation, 338 F.Supp. 438, 440 (E.D.Pa.1972), commented:
It would be difficult, if not impossible to accomplish this purpose if, when a complex scheme is alleged involving defendants from many states, venue for a particular district would have to be established as to each alleged participant in the illegal plan by proving that his illegal acts in furtherance of the fraud were committed in that district. An unnecessary multiplicity of suits and fragmenting of the issues involved would be the result of such a venue requirement. I...
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