MEMORANDUM OPINION AND ORDER
Dallen Wendt (“Mr. Wendt”) and Peggy Wendt (“Mrs. Wendt”) (collectively “Plaintiffs”) bring this action against Handler, Thayer & Duggan, LLC (“HT & D”), Thomas J. Handler (“Handler”), Steven J. Thayer (“Thayer”), James M. Duggan (“Duggan”) and Gregory Bertsch (“Bertsch”) (collectively “HT & D Defendants”), Offshore Trust Service, Inc. (“OTS”), Joshua J. Crithfield and Duane J. Crithfield (collectively “OTS Defendants”), Foster & Dunhill Consulting, Inc. (“F & D Consulting”) and Foster & Dunhill Planning Services, LLC (“F & D Planning”) (collectively “F & D”), and Stephen P. Donaldson (“Donaldson”) (collectively “Defendants”) alleging violations of Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b) (the “Exchange Act”), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 (“Rule 10b — 5”) (collectively “10 — b”), along with various state law violations. (R. 1, Compl.) Currently before the Court are four motions to dismiss filed by HT & D Defendants (R. 45), OTS Defendants (R. 49), F & D (R. 42), and Donaldson (R. 43), and a motion to exclude filed by HT & D Defendants (R. 61). For the reasons stated below, the motions to dismiss are granted in part and denied in part, and the motion to exclude is granted.
RELEVANT FACTS
In 2002, Plaintiffs began looking into various asset protection and investment options. (R. 1, Compl. ¶ 17.) In May 2002, Mr. Wendt attended a conference in the Bahamas on investment services and products. (Id. ¶¶ 19, 22.) Presenters at the conference included Donaldson, Handler, Duggan, Duane and Joshua Crithfield, and Sunderlage Resource’ Group (“Sunderlage”) (collectively the “Conference Presenters”). (Id. ¶ 21.) The Conference Presenters promoted an offshore trust investment option with First Fidelity Trust (“FFT”), as trustee, purchasing life insurance policies from Fidelity Insurance Company (“FIC”), and investing the policy proceeds with account administrator Westminster Hope & Turnberry (“WH & T”). (Id. ¶ 23.) Plaintiffs allege that they were told that FIC would invest in “no-risk,” fixed income accounts that were not available to the general public with a guaranteed return of 8% and 8.5% per annum (the “Fixed Accounts”). (Id. ¶¶ 25, 26, 28.)
After the conference, Plaintiffs hired law the firm HT
&
D
1
as tax and estate plan
In December 2002, Plaintiffs agreed to establish two trusts, the Smiling Frog Trust and the Black Ink Trust (collectively the “Trusts”), with FFT as the Trustee. (Id. ¶¶ 43-45.) Plaintiffs transferred $500,000 to the Smiling Frog Trust, and $1,000,000 to the Black Ink Trust. (Id. ¶ 62.) Plaintiffs allege that they were assured that although the trustee and investments were located offshore, they could effectively monitor and control the Trusts in the United States through OTS and its directors Duane and Joshua Crithfield, F & D and its direсtor Donaldson, and Sunderlage (collectively the “Trusts Managers”). (Id. ¶¶ 7-12, 46-47, 50-51.)
In January 2003, the Trusts purchased insurance policies, and invested funds in Fixed Accounts set to mature in January 2008 and January 2013. (Id. ¶¶ 63-65.) Plaintiffs allege that they were assured that their investments were “safe and profitable,” and that they received periodic accounting statements from OTS showing that the investments were making the guaranteed returns. (Id. ¶¶ 67, 68.) In November 2007, Plaintiffs asked HT & D to liquidate their accounts, including the Fixed Accounts which were set to mature. (Id. ¶ 69.) Plaintiffs allege that for months their request was ignored, and then in January 2008, they were told that FIC “claimed the investment had been depleted, and despite the fact that the 8% return had been ‘guaranteed,’ they could only pay 40 cents on the dollar for the monies invested if the [Fixed Accounts] were liquidated.” (Id. ¶ 71.) HT & D Defendants recommended that Plaintiffs accept FIC’s proposed settlement. (Id. ¶ 72.)
Plaintiffs allege that the accounting records provided up through December 31, 2007, were false. (Id. ¶ 73.) They believe the Trusts were invested in collateralized debt obligations, which earned as much as a 15% return, and that “Defendants retained all excess returns over the returns guaranteed in the Fixed Accounts as management fees or commissions.” (Id. ¶ 78.) Plaintiffs allege that HT & D Defendants, the Trust Managers, FFT, FIC and WH & T “were all engaged in a common enterprise to earn undisclosed fees and commissions from the Trusts [Plaintiffs] were advised to establish.” (Id. ¶ 53.) Plaintiffs further allege that the Trust Managers, FFT, FIC and/or WH & T were also clients of HT & D and despite the fact that HT & D represented Plaintiffs in negotiations adverse to these parties interests, their relationships as clients were never disclosed. (Id. ¶¶ 54-56, 76.)
PROCEDURAL HISTORY
On June 24, 2008, Plaintiffs filed their complaint in this Court. (R. 1, Compl.) The complaint contains eight counts, including securities violations under Rule 10-b (Count V).
(Id.)
In addition, the complaint alleges a violation of the Illinois Consumer Fraud Act, 815 ILCS 505/2 (“ICFA”) (Count IV), as well as stаte law claims for fraudulent misrepresentation (Count I), unjust enrichment (Count II), breach of fiduciary duty (Count III), legal malpractice (Count VI), accounting malpractice (Count VII) and civil conspiracy (Count VIII).
(Id.)
On August 29, 2008,
On September 2, 2008, F & D (R. 42), Donaldson (R. 43), and HT & D Defendants (R. 45) filed motions to dismiss based on lack of subject matter and personal jurisdiction, improper venue and failure to state a claim. On September 15, 2008, OTS Defendants also moved to dismiss. (R. 49.) Plaintiffs responded in opposition of all Defendants’ motions to dismiss (R. 54, Pls.’ Resp.), filing declarations from Mr. Wendt (R. 55), Tracy Sunderlage (R. 56), and Krista Ward (R. 57) (collectively the “Declarations”). On October 15, 2008, HT & D Defendants moved to exclude the Declarations for the purposes of its 12(b)(6) motion to dismiss. (R. 61, HT & D’s Mot. to Exclude.)
LEGAJL STANDARDS
Rule 12(b)(2) provides for dismissal where the Court lacks personal jurisdiction over a party. Fed.R.Civ.P. 12(b)(2). Although a plaintiff need not anticipate a personal jurisdiction challenge in its complaint, once the defendant moves to dismiss the complaint for lack of personal jurisdiction, the plaintiff bears the burden of demonstrating the existence of jurisdiction.
Purdue Research Found. v. Sanofi-Synthelabo, S.A.,
Rule 12(b)(3) provides that a party may move to dismiss based on improper venue. Fed.R.Civ.P. 12(b)(3). Plaintiff has the burden of establishing that venue is proper.
Hanyuan Dong v. Garcia,
Rule 12(b)(6) provides for dismissal where a party has failed to state a claim. Fed.R.Civ.P. 12(b)(6). In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), the Court assumes all well-pleaded allegations in the complaint to be true and draws all inferences in the light most favorable to the plaintiff.
Killingsworth v. HSBC Bank,
Plaintiffs claims that are “premised upon a course of fraudulent conduct,” are subject to the heightened pleading standard of Rule 9(b).
Borsellino v. Goldman Sachs Group, Inc., 477
F.3d 502, 507 (7th Cir.2007). Rule 9(b) requires the plaintiff to “state with particularity the circumstances .constituting fraud or mistake.” Fed.R.Civ.P. 9(b). The circumstances of fraud or mistake include the “identity of the person who made the mis
ANALYSIS
A. Subject Matter Jurisdiction
The first issue the Court must address is whether Plaintiffs have standing to bring Count V, the federal securities claim. In
Blue Chip Stamps v. Manor Drug Stores,
The purpose of 10-b is to provide a remedy to a plaintiff who was induced by a misrepresentation or a misleading omission in connection with the buying or selling of stock.
Isquith v. Caremark Int’l,
However, 10-b does not provide a remedy for an investor who lacks investment authority.
See id.; O’Brien,
Here, Plaintiffs allege that they established and funded the Trusts, the Trusts’ funds were then used to purchase insurance policies from FIC, and then the policy proceeds were invested with investment account administrator, WH & T. (R. 1, Compl. ¶¶ 23-27, 43-45, 62-65.) Plaintiffs do not allege that they themselves purchased or sold securities, and instead explicitly state that “the trusts technically made investment decisions oncе the money left [Plaintiffs’] hands.” (R. 54, Pls. Resp. at 32-33.) Although Plaintiffs argue that they “were led to believe that they would be directing the investment activity,” this
Because the Court has dismissed Plaintiffs’ only federal claim, subject matter jurisdiction now exists solely on the basis of diversity jurisdiction. 28 U.S.C. § 1332. Diversity jurisdiction is not disputed by Defendants. Upon review of the record, the Court is likewise satisfied that both diversity of citizenship and the amount in controversy requirements have been met.
B. Personal Jurisdiction
Next, non-resident F & D moves to dismiss the complaint pursuant to Rule 12(b)(2) for lack of personal jurisdiction. (R. 42, F & D’s Mot. to Dismiss.) F & D argues that they do not have the requisite minimum contacts with Illinois for personal jurisdiction to be exercised by this Court.
(Id.
at 4-5.) In diversity cases, such as this, a federal court may exercise personal jurisdiction over a non-resident defendant only if a court of the state in which the federal court sits could properly do so.
RAR, Inc. v. Turner Diesel, Ltd.,
For this Court to exercise personal jurisdiction, a defendant must have certain “minimum contacts” with the state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.
RAR Inc.,
Where two or more companies enter a joint venture, “the minimum contacts of one co-venturer are attributable to other co-venturers such that personal jurisdiction over one means personal jurisdiction over all.” Hill
v. Shell Oil Co.,
There is evidence to suggest that Foster & Dunhill Ltd. (“F & D Ltd.”) entered into a “joint venture” with HT & D, an Illinois LLC and law firm. Through the Declarations 2 , Plaintiffs assert that the entities orally agreed to share clients, expenses, and revenues. (R. 54, Pls. Resp. at 36-7.) In addition, Plaintiffs claim that on at least two occasions, F & D Ltd., as the exclusive promoter and marketer of FIC’s policies, entered Illinois and presented marketing and other material to clients in Illinois. (R. 56, Decl. of Tracy Sunderlage ¶¶ 6, 7.) Furthermore, Handler repeatedly references HT & D’s relationship with F & D as a “joint venture.” (Id. Ex. A.) In an email to Tracy Sunderlage, Handler discusses the terms of the agreement stating, “[W]e gave F & D 3 options for HT & D to stay involved: 1. Paying a retainer/speaking fee; 2. Paying us hourly; or, 3. Giving us a piece of the volume as a retainer. We all agreed to the volume based retainer....” (Id.) The email also states that Donaldson is “supposed to be spending his full-time efforts working on our joint venture.” (Id.)
The Court finds that at this stage, Plaintiffs have made a colorable showing that F & D and HT & D agreed to work together for a profit, thus creating a joint venture. Based on its relationship with HT & D, F & D has the requisite minimum contacts with Illinois for personal jurisdiction to exist in this Court.
See Central States,
F & D, however, argues that personal jurisdiction is still lacking because it is F & D Ltd., “a different entity” than F & D Consulting and F & D Planning, that has “pertinent involvement” in the issues of this case. (R. 64, F & D’s Reply at 2-3.) The Florida Department of State records show F & D Ltd. registered as a foreign corporation in 1995, then withdrew its registration in 2002. (R. 55, Decl. of Mr. Wendt, Ex. I.) F & D Planning was created in 2004 and F & D Consulting in 2006. (R. 42, F & D’s Mot., Ex. 1 ¶¶ 3, 6.) Donaldson is listed as a director of all three entities. (Id.)
C. Venue
OTS Defendants seek dismissal pursuant to Rule 12(b)(3) on the ground that this is not the proper venue for Plaintiffs’ claims. (R. 50, OTS Defs.’ Mem. at 13-15.) OTS Defendants rely on a forum selection clause contained in the Investment Manager Agreеment (the “Agreement”) between Mr. Wendt, the Investment Manager, and FFT, that required claims to be litigated in Nevis, an island in the Caribbean. 3 (Id. at 13-14.) Although they are not signatories to the Agreement, OTS serves as agent for FFT for tax related issues by virtue of separate agreements. 4 (See R. 49, OTS Defs.’ Mot., Ex. B.) OTS Defendants argue because of its agency relationship with FFT, a signatory to the Agreement, the forum selection clause is applicable in this case. (R. 50, OTS Defs.’ Mem. at 14.)
OTS Defendants rely on
American Patriot Ins. Agency, Inc. v. Mut. Risk Management, Ltd.,
In
American Patriot,
the plaintiff entered a shareholder agreement containing a forum selection clause, with an affiliate of the corporate defendant.
American Patriot,
In this case, however, there is no corresponding contract between Plaintiffs and OTS Defendants that might constitute a “package” of agreements. Plaintiffs allege that they did not sign any agreements with OTS Defendants and that “OTS was unilaterally appointed by the trustee to act as a reporting agent in the United States.” (R. 54, Pls.’ Resp. at 33.) This is akin to one of the defendants in
American Patriot
who did not have a contract with plaintiff, but instead was “hired by the [ ] affiliate.”
American Patriot,
Moreover, the Court finds that OTS Defendants are not “closely related” as that term is defined in the cases they cite'. In
Frietsch,
the signatory was “entirely controlled” by the non-signatory, while in
Hugel,
plaintiff was bound to the forum selection clause because he was Chairman and CEO and owned 99% and 100% of the stock in the signatory corporations.
Hugel,
D. Failure To State a Claim
Defendants next argue that the claims should be dismissed because Plaintiffs failed to plead the allegеd fraudulent conduct with the requisite particularity and have not pleaded a claim for legal malpractice. (R. 43, Donaldson’s Mem. at 10-13; R. 45, HT & D Defs.’ Mem. at 7-12; R. 50, OTS Defs.’ Mem. at 5-9; R. 39, TB & W’s Mem. at 10.)
1. Fraud Claims
Counts I-IV and VIII are premised on Defendants’ alleged fraudulent conduct.
(See
R. 1, Compl.) As a preliminary matter, the Court is not persuaded by Defendants’ argument that the statute of limitations bars these claims.
(See
R. 45, HT & D Defs.’ Mem. at 13-14; R. 66, Donaldson’s Reply at 14-16; R. 76, OTS Defs.’ Reply, at 9.) Under the “discovery rule” the commencement of the statute of limitations is delayed until the party knows or reasonably should know that the injury has occurred and that it is wrongfully caused.
Hermitage Corp. v. Contractors Adjustment Co.,
Next, HT
&
D Defendants, OTS Defendants, and Donaldson argue that Plaintiffs have faded to plead with particularity the circumstances constituting fraud. (R. 43, Donaldson’s Mem. at 10-13; R. 45, HT
&
D Defs.’ Mem. at 7-12; R. 50, OTS Defs.’ Mem. at 5-9; R. 39, TB & W’s Mem. at 10.) The claims that are premised on Defendants alleged fraudulent conduct are subject to the heightened pleading standard of Rule 9(b).
Borsellino,
A plaintiff who provides a “general outline of the fraud scheme” sufficient to “reasоnably notify the defendants of their purported role” in the fraud satisfies Rule 9(b).
Midwest Grinding Co., Inc. v. Spitz,
Here, Plaintiffs attempt to outline their understanding of еach Defendants’ role in the fraud in the Declarations filed with their response.
(See
R. 55, Wendt Decl.; R. 56, Sunderlage Decl.; R. 57, Ward Decl.) HT
&
D Defendants move to exclude the Declarations. (R. 61, HT
&
D Defs.’ Mot. to Exclude.) Normally, a plaintiff is permitted to assert additional facts, either in its brief or in affidavits, in response to a 12(b)(6) motion, so long as the additional facts are consistent with the complaint.
See Help at Home, Inc. v. Medical Capital, LLC,
The Court will not consider these additional factual assertions to determine if Plaintiffs’ allegations of fraud have met Rule 9(b)’s particularity requirement.
See Kennedy,
In the complaint, Plaintiffs allege that Defendants “were all engaged in a common enterprise to earn undisclosed fees and commissions from the Trusts [Plaintiffs] were advised to establish.” (R. 1, Compl. ¶ 53.) Plaintiffs further allege that they were provided periodic accounting statements that omitted the true nature and extent of the fees and commissions that were allegedly being siphoned from their Trust investments. (Id. ¶¶ 68, 78.) Plaintiffs argue that the allegations are averred to Defendants as a group because “Defendants collectively had a role in [Plaintiffs’] investments at issue, and have taken and benefited from sharing undisclosed fees and commissions over multiple years.” (R. 54, Pls.’ Resp. at 24.) Further, Plaintiffs allege that they were “kept in the dark” and therefore do not know “the full extent of the timing and magnitude of [their] losses.” (Id. at 25.)
The Court finds the allegations in the complaint are insufficient to meet the requisite particularity requirements. Although when details of the fraud “are within the defendant’s exclusive knowledge,” specificity requirements are less stringent, a complaint that is “completely wanting in the details that Rule 9(b) mandates” will nоt survive a motion to dismiss.
Jepson,
2. Malpractice Claims
Next, HT & D Defendants move to dismiss Plaintiffs’ legal malpractice claim (Count VI) against them. HT & D Defendants argue that Plaintiffs have failed to plead the elements of legal malpractice with specificity. (R. 45, HT & D Defs.’ Mem. at 11.) To prevail in an action for legal malpractice, a plaintiff must prove the following elements: (1) the existence of an attorney-client relationship; (2) a negligent act or omission constituting a breach of that duty; (3) proximate cause establishing that but for the attorney’s negligence, the plaintiff would have prevailed in the underlying action; and (4) damages.
First Nat’l Bank v. Lowrey,
The Court finds that Plaintiffs have adequately alleged each of the four required elements. HT & D Defendants acted as
CONCLUSION
For the reasons stated above, the motion to exclude (R. 61) is GRANTED and the motions to dismiss (R. 42, R. 43, R. 45, R. 49), are GRANTED in part and DENIED in part. The motions to dismiss Counts I-V and VIII are GRANTED. Count V is dismissed with prejudice. Counts I-IV and VIII are dismissed without prejudice and Plaintiffs are given 21 days to file an amended complaint to re-plead their allegations of fraud with more specificity. The motions to dismiss are DENIED in all other respects.
The parties are directed to reevaluate their settlement positions in light of this opinion and to exhaust all efforts to settle this case. The parties shall appear for a status on June 2, 2009 at 9:45 a.m. to set a firm litigation schedule for the case.
Notes
. Handler, Thayer, Duggan, and Bertsch are partners and/or principals of HT & D.
(Id.
. The Court may consider affidavits and other outside materials to determine whether it has personal jurisdiction.
Purdue Research Found.,
. The Agreement provides: “It is mutually agreed that the validity, performance and interpretation of this Agreement, the terms thereof and any question or obligation arising out of the relationship hereby created, shall be governed by the Laws of Nevis____” (R. 49, OTS Defs.' Mot., Ex. A.)
. The agreements authorize OTS to act as the agent of the Trusts “solely for purposes of sections 7602, 7603 and 7604 of the Internal Revenue Code with respect to any request to examine records or produce testimony related to the proper treatment of amounts required to be taken into account under the rules of sections 6048(b)(1)(A) or to any summons for such records or testimony.” (R. 49, OTS Defs.' Mot., Ex. B.)
. In addition, the ICFA "applies only to fraudulent transactions which take place 'primarily and substantially’ in Illinois."
Barbara’s Sales, Inc. v. Intel Corp.,