ILLINOIS LAW UPDATE

The Illinois 4th District Appellate Court recently ruled on the jurisdiction issue in the case of Khan v. Gramercy Advisors, LLC, 4th_Dist_-_Khan.pdf (258 KB)2016 IL App (4th) 150435 (June 30, 2016). The court held that two of the five defendants in that case were properly denied dismissal for lack of jurisdiction while the remaining three defendants were appropriately dismissed. The court first acknowledged that based on the U.S. Supreme Court’s opinion in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), there was no general jurisdiction over any of the defendants. However, the court did find that it could alternatively exercise specific jurisdiction over two of the defendants given that their connections with the state of Illinois satisfied due process.

In this case, the defendants were accused of defrauding the plaintiffs into buying tax shelters that were used for the years 2002 & 2003. The court found that two of the defendants had defrauded the plaintiffs in the state of Illinois by purposefully soliciting business in Illinois. They did this when they hired a local Illinois business, BDO, to make the tax shelter offers on their behalf. The court explained that a single act by the nonresident defendant, such as a telephone call, “can be enough to confer personal jurisdiction if that act gives rise to the claim being asserted.” The court further explained that if the communication “merely solicited business from the forum [state], negotiated a contract, formed an initial attorney-client relationship, or involved services not alleged to form the basis of the complaint”, it would not justify the exercise of personal jurisdiction there. The court found that those two particular defendants had purposefully directed their activities at the forum resident plaintiffs, and thus were then required to present a compelling case that the presence of some other considerations would render jurisdiction unreasonable. The two defendants failed to meet that burden and the court held there was in fact jurisdiction.

As to the other 3 remaining defendants, the court found that while the conduct of those remaining defendants may have had an impact on the plaintiffs who happened to be in Illinois, those defendants had taken no actions within the state to support specific jurisdiction unlike the two defendants discussed above. The court explained that personal jurisdiction must be based on the defendant’s contacts with the forum state, not on what the plaintiffs did or did not do in the forum state. Therefore, plaintiffs following advice that does not target Illinois, does not confer jurisdiction over the defendants.

While the first district recently tried to expand the state’s reach using specific jurisdiction, the fourth district appears to have taken steps to limit that reach by specifically defining what is required for specific jurisdiction. It remains to be seen how the 5th District will handle the issue. This decision appears to be at odds with the 1st District’s recent opinion in the GlaxoSmithKline LLC case, GSK_Opinion.pdf (112 KB)2016 IL App (1st) 151909 (June 2016), where the court found specific jurisdiction based on forum state contacts from which the plaintiff’s claims did not arise. Though it appears that the Khan case has not been further appealed, we anticipate the Illinois Supreme Court will likely need to address this issue at some point in the not too distant future.