Asset Allocation and Management Co. v. Western Employers Ins. Co.

Decision Date03 January 1990
Docket NumberNo. 89-1686,89-1686
PartiesFed. Sec. L. Rep. P 94,913 ASSET ALLOCATION AND MANAGEMENT COMPANY, Plaintiff-Appellee, v. WESTERN EMPLOYERS INSURANCE COMPANY, Defendant-Appellant.
CourtU.S. Court of Appeals — Seventh Circuit

James J. Stamos (argued), Shelley L. Rice, Coffield, Ungaretti, Harris & Slavin, Chicago, Ill., for plaintiff-appellee.

John Kakacek, Paul F. Stack, Stack & Filpi, Chicago, Ill., Charles J. Hecht (argued), New York City, for defendant-appellant.

Before POSNER and RIPPLE, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

POSNER, Circuit Judge.

This interlocutory appeal from rulings leading up to the grant of an injunction brings before us a tangle of jurisdictional and procedural questions. In 1986, Asset Allocation and Management Company, a partnership of three corporations which provides investment advice to insurance companies, was hired by Western Employers Insurance Company, a California insurance company. Asset advised Western to invest in a trading program administered by Jefferies & Company, a brokerage firm. Western took Asset's advice and invested. The program was a flop. Western lost millions. In 1987, thoroughly disenchanted, Western stopped paying Asset the investment-advisor fees called for by their contract, threatened to sue it in California for fraud and securities violations, but invited it to arbitrate their differences. Asset responded by filing the present suit in May 1988, a diversity breach of contract suit for $18,500 in unpaid investment-advisor fees. The suit was filed a year before the increase to $50,000 in the minimum amount in controversy in diversity suits took effect.

Western had filed a number of motions in Asset's suit but had not yet filed its answer when on January 7, 1989, it brought suit in federal district court in California against Asset, the three corporations that are the partners in Asset, and four individuals and firms that allegedly control Asset. The suit charged that in inducing Western to invest with Jefferies, Asset had made misrepresentations in violation of federal and state law. Damages of some $3.5 million--an amount equal to Western's trading losses--were sought.

On January 23, 1989, two and a half weeks after suing Asset in California, Western finally answered the complaint in the present suit. It attached to its answer a counterclaim identical to its California complaint--whereupon Asset moved Judge Conlon, the district judge presiding over its suit, to enjoin Western from proceeding with its California suit. She granted the motion and not only enjoined Western from proceeding in the California suit but also ordered Western to dismiss that suit. Asset had already asked the judge in California for a stay, but this request (which so far as we can determine has never been acted on) became moot when Judge Conlon issued the injunction.

The injunction is of course an interlocutory order, since it does not wind up the litigation, which remains pending before Judge Conlon. But it is appealable regardless of finality by virtue of 28 U.S.C. § 1292(a)(1), and this even though it is not a temporary or preliminary injunction. Parks v. Pavkovic, 753 F.2d 1397, 1402-03 (7th Cir.1985). The question is what rulings it brings up with it for our review--what, in other words, is the scope of pendent appellate jurisdiction. The answer is twofold. First, any ruling on which the validity of the injunction turns is reviewable, Elliott v. Hinds, 786 F.2d 298, 301 (7th Cir.1986); Shaffer v. Globe Protection, Inc., 721 F.2d 1121, 1124 (7th Cir.1983); Associated Business Telephone Systems Corp. v. Greater Capital Corp., 861 F.2d 793, 796 (3d Cir.1988); Decker Coal Co. v. Commonwealth Edison Co., 805 F.2d 834, 837 n. 1 (9th Cir.1986), such as the ruling that the district court in Illinois has jurisdiction over Western; for without jurisdiction the court could not properly order Western to do or not do anything. The principle is no different from that governing appeals from final decisions: the appeal brings up not only the final decision but also all prior rulings that affect the validity of that decision. Disher v. Information Resources, Inc., 873 F.2d 136, 140-41 (7th Cir.1989); EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 353 n. 55 (7th Cir.1988). Otherwise the decision would not be fully reviewable, and we would have piecemeal appealability with a vengeance.

Second, in the interest of judicial economy, the appellate court can in its discretion review rulings that are related but not essential to the validity of the injunction. Parks v. Pavkovic, supra, 753 F.2d at 1402; Bittner v. Sadoff & Rudoy Industries, 728 F.2d 820, 826-27 (7th Cir.1984); Maybelline Co. v. Noxell Corp., 813 F.2d 901, 903 n. 1 (8th Cir.1987); Intermedics Infusaid, Inc. v. Regents of University of Minnesota, 804 F.2d 129, 134 (Fed.Cir.1986). There is tension between these two lines of cases, including the cases within this circuit: Shaffer and Elliott imply that there is no power to review a ruling that is not dispositive of the injunction's validity, Parks and Rudoy that there is. We attempted a reconciliation in Patterson v. Portch, 853 F.2d 1399, 1403 (7th Cir.1988), which, after describing pendent appellate jurisdiction broadly ("an order not itself appealable, but closely connected to an order that is appealable, may be reviewed as a pendant to the latter order"), construed it narrowly: "we can review an unappealable order only if it so entwined with an appealable one that separate consideration would involve sheer duplication of effort by the parties and this court." No further refinement need be attempted here, for with one exception we shall have to review only those prior rulings by the district judge that are reviewable under any view of pendent appellate jurisdiction because essential to the injunction's validity--and the exception is a ruling that a recent federal statute makes reviewable regardless of finality.

We begin with personal jurisdiction. Under Illinois' long-arm statute, Asset could sue Western in Illinois if Asset's cause of action for breach of contract arose from Western's "transaction of any business within" the state. Ill.Rev.Stat. ch. 110, p 2-209(a)(1). Judge Conlon thought it did, citing the following facts: Western mailed its checks in payment for Asset's advisory fees to Asset's office in Illinois, made one phone call to that office, and, as the losses mounted up, mailed several letters of inquiry and complaint to Asset. Other facts tug the other way, however: Asset solicited the contract in California--that is, sent its marketing people to California to persuade Western to hire it. The contract was signed there. The securities that Asset was to advise Western on were also there, as was Jefferies & Company, which invested those assets under Asset's direction, pursuant to a contract between Jefferies and Western made in California. And since no employee of Western ever visited Asset's office in Illinois, the advice that Asset gave Western pursuant to the contract must have been given in California, unless it was given by mail or (more probably) by phone; but neither the district court nor Asset suggests it was. No doubt the advice was formulated in Illinois, at Asset's office; but neither the district court nor Asset suggests that the place of formulation--that is, the place of Asset's performance--determines jurisdiction. The question is whether Western was transacting business in Illinois, not whether Asset, the Illinois resident, was. J.J. & J. Foundation Co. v. Tommy Moore, Inc., 640 F.Supp. 1119, 1121-22 and n. 4 (N.D.Ill.1986).

If the district court's finding of personal jurisdiction is correct, the breach of any contract between a resident of Illinois and a nonresident is actionable in an Illinois court--at least as a matter of Illinois law, for there are constitutional limitations on a state's attempt to assert jurisdiction over nonresidents, though we shall not have to explore those limitations in this case. Payment of the contract price will almost always be sent to Illinois, and there is bound to be some correspondence with the Illinois firm as well. Suppose the traveling salesman for an Illinois manufacturer of gewgaws sold one out of his traveler's case in the Australian outback to a sheep farmer who agreed to remit monthly installment payments to the manufacturer's office in Illinois, later wrote the manufacturer complaining that the gewgaw did not work, and, not having received satisfaction, stopped making installment payments. Under the logic of the district court's ruling, the manufacturer could sue the farmer in an Illinois court for the balance of the contract price.

The arm of the Illinois statute is not that long. Cook Associates, Inc. v. Colonial Broach & Machine Co., 14 Ill.App.3d 965, 304 N.E.2d 27 (1973), goes the furthest of any case we know, and it was indeed much like this case but with a vital difference: the nonresident responded to the Illinois resident's offer by phoning his acceptance to the offeror in Illinois. This was transacting business in Illinois in a literal sense even though the nonresident's contact with the state was otherwise as tenuous as here. Asset's offer, in contrast, was made and accepted in California. Western's dealings in Illinois were limited to paying and complaining. If those dealings are enough to confer jurisdiction, the long-arm statute reaches every contract with an Illinois resident.

There may however be, an alternative basis for personal jurisdiction in this case. Under Illinois law, a firm that does business in Illinois on a regular basis may be sued in an Illinois court even if the plaintiff's cause of action does not grow out of that business. Cook Associates, Inc. v. Lexington United Corp., 87 Ill.2d 190, 199-203, 57 Ill.Dec. 730, 734-35, 429 N.E.2d 847, 851-52 (1981); Reeves v. Baltimore &...

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