Gramercy Advisor LLC, Gramercy Asset Management LLC, Gramercy Local Markets Recovery Fund LLC and Gramercy Financial Services LLC v. R. K. Lowery, Jr. L-Falling Creek LLC, Russell A. Chabaud, R-Rac Wimbledon, LLC, John P. Moffitt, J-Jason LLC, Russell A. Chabaud, Trustee of the Russell G. Chabaud 1999 Investment Trust, R- Russell Wimbledon, LLC ( 2015 )

ACCEPTED
01-14-00904-CV
FIRST COURT OF APPEALS
HOUSTON, TEXAS
2/2/2015 3:22:35 PM
CHRISTOPHER PRINE
CLERK
NO. 01-14-00904-CV
__________________________________________________________________
FILED IN
IN THE COURT OF APPEALS 1st COURT OF APPEALS
HOUSTON, TEXAS
FOR THE FIRST DISTRICT OF TEXAS
2/2/2015 3:22:35 PM
__________________________________________________________________
CHRISTOPHER A. PRINE
Clerk
GRAMERCY ADVISORS LLC, GRAMERCY ASSET MANAGEMENT LLC,
GRAMERCY LOCAL MARKETS RECOVERY FUND LLC, AND
GRAMERCY FINANCIAL SERVICES LLC,
Defendants-Appellants,
v.
R.K. LOWRY, JR., ET AL.,
Plaintiffs-Appellees.
__________________________________________________________________
From the District Court of Harris County, Texas, 80th Judicial District;
Trial Court Case No. 2008-74262
__________________________________________________________________
APPENDIX IN SUPPORT OF DEFENDANTS-APPELLANTS’ BRIEF
TO THE HONORABLE FIRST COURT OF APPEALS:
Appellants Gramercy Advisors LLC, Gramercy Asset Management LLC,
Gramercy Local Markets Recovery Fund LLC, and Gramercy Financial Services
LLC (collectively, “Gramercy”) submit this Appendix in Support of Appellant’s
Opening Brief on the Merits.
APPENDIX DESCRIPTION
Appendix A Appealable Order
Appendix B This Court’s Memorandum Opinion Reversing the 80th District
Court’s Order Denying Financial Strategy Group, PLC’s Special
Appearance in Cause No. 01-14-00273-CV
Appendix C Cook County, Illinois Circuit Court’s Opinion Dismissing Suit
Against Gramercy for Lack of Personal Jurisdiction in Coe et al. v.
BDO Seidman, L.L.P., Cause No. 12 L 13691, dated Nov. 26, 2014
(unpublished)
Appendix D Cook County, Illinois Circuit Court’s Opinion Dismissing Suit
Against Gramercy for Lack of Personal Jurisdiction in Kaufman et
al. v. BDO Seidman L.L.P., Cause No. 12 L 13692, dated Nov. 26,
2014 (unpublished)
Respectfully submitted,
MUNSCH HARDT KOPF & HARR, P.C.
By:__/s/ David C. Mattka______________
David C. Mattka (TSB No. 13231500)
MUNSCH HARDT KOPF & HARR, P.C.
401 Congress Avenue, Suite 3050
Austin, Texas 78701
(512) 391-6100 (telephone)
(512) 391-6149 (facsimile)
Email: dmattka@munsch.com
Lead Counsel for Defendants-Appellants
Additional Counsel:
Sean F. O’Shea (admitted pro hac vice)
Michael E. Petrella (admitted pro hac vice)
Daniel M. Hibshoosh (admitted pro hac vice)
O’SHEA PARTNERS LLP
521 Fifth Avenue, 25th Floor
New York, New York 10175
(212) 682-4426 (telephone)
(212) 682-4437 (facsimile)
Email: soshea@osheapartners.com
Email: dhibshoosh@osheapartners.com
Email: mpetrella@osheapartners.com
CERTIFICATE OF SERVICE
In accordance with the Texas Rules of Appellate Procedure, I certify that a
true and correct copy of this Appendix in Support of Defendants-Appellant’s Brief
was served upon the following counsel of record, by the court’s electronic filing
system on February 2, 2015:
Via E-Filing & Electronic Mail:
W. Ralph Canada, Jr.
David R. Deary
Wilson Wray
Tyler Simpson
Loewinsohn Flegle Deary, LLP
12377 Merit Drive, Suite 900
Dallas, TX 75271
Attorney for Plaintiffs-Appellees
/s/ David C. Mattka
David C. Mattka
APPENDIX A
FILED 1--\
Chris Daniel
District Clerk
OCT 17 2014
-
CAUSE NO. 2008-74262
Time:._"""'i:i::::::=-;:-:-:=~--­
Harrts Counh• T<>v"'"
R. K. LOWRY, JR., et al, § IN THE DISTRICT COURT
§
Plaintiffs, §
§
vs. § 80th JUDICIAL DISTRICT
§
BDO SEIDMAN, L.L.P., et al, §
§
Defendants. § HARRIS COUNTY, TEXAS
ORDER
On October 17,2014, this Court heard the Special Appearance and Amended Special
Appearance of Defendants Gramercy Advisors, LLC, Gramercy Asset Management, LLC,
Gramercy Local Markets Recovery Fund, LLC, Gramercy Financial Services, LLC, StE!El'Q:lbga:t
.GEt19tttll MtlRS:gsm:ent, LLC, ElllQ l~/ A. Jelm~te~ollectively "Gramercy"). Having considered
the Special Appearance, Amended Special Appearance, the parties' responses and replies, oral
argument, and all affidavits, depositions, and discovery submitted in support and in opposition,
the Court is of the opinion that the Special Appearance and Amended Special Appearance should
be DENIED.
It there therefore ORDERED that Gramercy's Special Appearance and Amended Special
Appearance is DENIED.
CertifiedDocumentNumber:62825834-Page1of1
Signed and Ordered this {]lb. day of 0 ~ ~ , 20 Ji.
\
OCT 11 2Dl4
RECORDER'S MEMORANDUM
This instrument is of poor quality
at the time of imaging
I, Chris Daniel, District Clerk of Harris
County, Texas certify that this is a true and
correct copy of the original record filed and or
recorded in my office, electronically or hard
copy, as it appears on this date.
Witness my official hand and seal of office
this February 2, 2015
Certified Document Number: 62825834 Total Pages: 1
Chris Daniel, DISTRICT CLERK
HARRIS COUNTY, TEXAS
In accordance with Texas Government Code 406.013 electronically transmitted authenticated
documents are valid. If there is a question regarding the validity of this document and or seal
please e-mail support@hcdistrictclerk.com
APPENDIX B
Opinion issued January 27, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00273-CV
———————————
FINANCIAL STRATEGY GROUP, PLC, Appellant
V.
R. K. LOWRY, JR., L-FALLING CREEK, LLC, RUSSELL A. CHABAUD,
R-RAC WIMBLEDON LLC, JOHN P. MOFFITT, J-JASON LLC,
RUSSELL A. CHABAUD, TRUSTEE OF THE RUSSELL G. CHABAUD
1999 INVESTMENT TRUST, R-RUSSELL WIMBLEDON, LLC, RUSSELL
A. CHABAUD, TRUSTEE OF THE ASHLEY CHABAUD 1999
INVESTMENT TRUST, R-ASHLEY WIMBLEDON, LLC, RUSSELL A.
CHABAUD, TRUSTEE OF THE AUDREY CHABAUD 1999 INVESTMENT
TRUST, R-AUDREY WIMBLEDON, LLC, LMC RECOVERY FUND, LLC,
UNION GAS FUNDING I, L.P., RANA HOLDINGS, LLC, WESTY I LLC,
AND MOGI, LLC, Appellees
On Appeal from the 80th District Court
Harris County, Texas
Trial Court Case No. 2008-74262
MEMORANDUM OPINION
This is an accelerated appeal from an order denying a special appearance.
We reverse.
BACKGROUND
Plaintiffs sued numerous defendants complaining of tax investment
strategies marketed to plaintiffs for use on their federal tax returns for the tax years
2000 through 2005 (“Investment Strategies”). Defendant Financial Strategy Group
(“Financial Strategy”) filed a special appearance, which the trial court denied.
This appeal followed.
A. Plaintiffs’ Allegations
Plaintiffs’ petition alleges that defendants “jointly and in concert developed,
promoted, sold, and implemented the Investment Strategies as a part of a
conspiracy to commit fraud.” According to plaintiffs, defendants “counseled and
advised Plaintiffs to undertake the Investment Strategies, claiming the Investment
Strategies would yield a substantial profit and minimize Plaintiffs’ tax liability.”
Plaintiffs further alleged that at the time the defendants sold the Investment
Strategies to the plaintiffs, they knew—or should have known—that “the
Investment Strategies would not and could not yield the investment results or tax
treatment claimed.” Indeed, plaintiffs’ petition contends, the defendants “knew, at
the time they promoted and sold the Investment Strategies to Plaintiffs, that federal
authorities were investigating the legality of similar ‘abusive tax shelters.’”
2
Despite defendants’ knowledge, they did not inform plaintiffs. Defendants’
motive, according to plaintiffs, “was to extract millions of dollars in fees and
commissions from Plaintiffs.” As a result of their detrimentally relying on
defendants’ expertise, advice and representations about the legality and propriety
of the Investment Strategies, plaintiffs entered into illegal and abusive tax shelters,
subjecting them to “substantial back taxes, interest, penalties, and other damages.”
B. Allegations specific to Financial Strategy Group1
Plaintiffs’ petition alleged that defendant-appellant Financial Strategy is a
Tennessee corporation with its principal place of business in Tennessee that “is
continuously and systematically engaged in business and/or was continuously and
systematically engaged in business in the State of Texas, committed tortious acts in
Texas and entered into contracts with Texas residents.”
The petition further alleged the following involving Financial Strategy:
Unbeknownst to Plaintiffs, BDO, Gramercy, Sidley Austin, De
Castro West, Financial Strategy Group and others (including Lehman)
jointly conspired to design the Investment Strategies before BDO and
Gramercy, with the assistance of others including MLB and Financial
Strategy, executed their plan to promote and sell the Investment
Strategies to their own clients—such as Plaintiffs. Unbeknownst to
Plaintiffs, Sidley Austin and De Castro West agreed that BDO
Seidman and Gramercy could promise prospective clients, such as
Plaintiffs, that they would receive tax opinion letters certifying the
soundness and legality of the Investment Strategies being sold. For a
substantial fee, Sidley Austin and De Castro West issued tax opinions
1
The facts recited in this section are taken from Plaintiffs’ petition.
3
to Plaintiffs that purported to substantiate the bona fides of certain of
the Investment Strategies.
....
Despite the Strategy Defendants’ knowledge that the IRS would
likely deny the Investment Strategies, Financial Strategy and BDO
prepared certain federal tax returns for an entity used to implement the
Investment Strategies, and the Strategy Defendants advised Plaintiffs
to file individual federal tax returns implementing the Investment
Strategies. Even after the Strategy Defendants learned that the IRS
had begun to audit and disallow capital and other losses claimed
through similar tax strategies, the Strategy Defendants continued to
advise Plaintiffs to use the Investment Strategies to offset income
and/or capital gains on their income tax returns.
....
Financial Strategy and BDO prepared certain federal tax returns
for an entity that was used to implement the Investment Strategies. At
no point in time did BDO, Gramercy, Sidley Austin, De Castro West,
Financial Strategy, or the Other Participants ever disclose to Plaintiffs
that they had fraudulently conspired together to design, promote, sell
and implement the Investment Strategies, and were in no way
independent from each other.
....
By design, full implementation of the Investment Strategy took several
years. Plaintiffs classify the defendants by steps in that strategy. Plaintiffs’ claims
against Financial Strategy only involve the Investment Strategies in 2002 and
2003, but their allegations related to the scheme for earlier years are included
below for context.
4
1. 2000 Digital Option Strategy
In June 2000, plaintiffs received substantial proceeds from the sale of certain
oil and gas properties and wanted to diversify their investment portfolio. In
September 2000, Defendants Randy Mooreman (a tax partner with defendant BDO
Seidman’s Houston office) and Paul Shanbrom (a member of BDO’s Tax Solutions
Group) pitched certain of the Investment Strategies—specifically “distressed debt
strategy”—to plaintiffs.
Without disclosing agreements between BDO and defendant Gramercy,
Defendants at that meeting recommended that plaintiffs engage Gramercy as an
expert in distressed debt investments. Plaintiffs were required to execute a
consulting agreement with BDO as a condition of their engaging Gramercy. And,
as part of the Investment Strategy, Shanbrom advised plaintiffs to invest an
additional $15,000,000 with Gramercy—unrelated to the distressed debt strategy—
to provide a diversified portfolio and strengthen plaintiffs’ position in the event of
an IRS audit. Plaintiffs were also told that they would need to immediately invest
with Gramercy in November 2000 to implement the distressed debt strategy for
2000. As part of the consulting agreement with BDO, plaintiffs were promised
opinion letters from Sidley Austin opining that the Investment Strategies were
legal, and free representation by BDO in any resulting IRS audit.
5
Plaintiffs’ petition alleges that, unbeknownst to plaintiffs, the “2000 Strategy
Defendants” (which included Gramercy, BDO, and several individuals) invested
plaintiffs’ funds in a “digital option strategy” rather than a distressed debt strategy
because there was not sufficient time to implement the distressed debt strategy.
LMC Recovery Fund LLC is a defendant company into which plaintiffs
(through their respective LLCs formed to purchase options) contributed option
positions in December 2000 as part of the Investment Strategies. After the options
expired, creating gains or losses, then plaintiffs also contributed cash and other
assets to LMC. Plaintiffs then contributed their interest in LMC to an S
Corporation. That S Corporation sold the capital or ordinary assets contributed by
plaintiffs, creating substantial losses because the assets had an artificially inflated
basis.2 These losses could be used on plaintiffs’ tax return to offset income and
gains from other sources, reducing or eliminating plaintiffs’ tax liability.
Sidley Austin’s opinion letter opined that the digital option strategies were
legal and that LMC Recovery Fund LLC would be classified as a partnership for
tax purposes. In 2001, BDO prepared the 2000 federal tax return for LMC
Recovery Fund and provided a copy of the return plaintiffs. In reliance on the
2000 Strategy Defendants’ advice, plaintiffs included—on their individual 2000
2
This is because the options’ bases were increased by the premium paid to purchase
the options, but not decreased by the premium received by plaintiffs on the sale of
certain options.
6
tax returns—the losses purportedly generated from the 2000 distressed option
strategy.
2. 2001 Distressed Debt Strategy
Under the advice of BDO, Gramercy, and Sidley Austin, plaintiffs entered
into distressed debt transactions designed to create losses to offset other income or
game. LMC Recovery Fund LLC was again instrumental in the strategy. In April
2001 and July 2001, plaintiffs made capital contributions to LMC Recovery Fund.
Brazilian and Bulgarian companies then contributed certain distressed debt assets3
to the Gramercy Local Markets Recovery Fund, LLC, which, in turn, contributed
the distressed debt instruments to LMC in exchange for a membership interest
therein. The plaintiffs purchased additional interest in LMC from the Brazilian and
Bulgarian interest-holders. Finally, LMC sold a portion of the distressed debt
instruments, generating losses.
Sidley Austin’s opinion letters again advised that these transactions were
legal and that LMC Recovery Fund LLC would be treated as a partnership for tax
purposes. Plaintiffs and other contributors to LMC (Gramercy Local Markets
Recovery Fund and the Brazilian and Bulgarian companies) would be considered
the partners. BDO Seidman prepared the 2001 federal return for LMC and
3
Distressed debt instruments are those that can be purchased at a significant
discount from the face value, such that they have a significant built-in loss through
their high basis but low value.
7
provided a copy of the return to plaintiffs. In reliance on the 2001 Strategy
Defendants’ advice, plaintiffs included—on their individual 2001 tax returns—the
losses purportedly generated from the 2001 distressed debt strategy.
3. The 2002 Distressed Debt Strategy (involving Financial Strategy).
The 2002 distressed debt strategy entailed LMC selling additional portions
of the distressed debt purchased in 2001 in December 2002, thereby creating a
purported loss for plaintiffs in 2002. Defendant DeCastro West issued opinion
letters that the strategies were legal, and that LMC would be treated as a
partnership for tax purposes. Each of LMC contributors would be treated as a
partner of LMC Recovery (i.e., Plaintiffs, Gramercy Local Markets Recovery
Fund, and the Brazilian and Bulgarian companies). DeCastro’s opinion letter also
provided that a portion of LMC Recovery’s losses would be allocable to plaintiffs
as transferee and holder of original contributors’ interests.
Appellant-defendant Financial Strategy prepared the 2002 tax return for
LMC Recovery Fund and prepared the corresponding Texas-resident plaintiffs’
scuedule K-1s. LMC’s 2002 tax return listed a Connecticut address for LMC, and
designated a non-Texas Gramercy-related entity as the Tax Matters Partner for the
IRS to contact about the return. Plaintiffs’ petition alleges that, “[i]in reliance on
the 2002 Strategy Defendants’ advice, opinions, and instructions and the 2002
federal tax return for LMC Recovery Fund LLC, the Plaintiffs signed and filed
8
their federal tax returns for the year 2002 in approximately October 2003.” The
plaintiffs included the losses generated by the 2002 Distressed Debt Strategy on
their 2002 tax returns.
4. The 2003 Distressed Debt Strategy (involving Financial Strategy).
The 2003 distressed debt strategy followed the same steps as earlier years—
i.e. in 2002, a different Brazilian company contributed certain distressed debt
instruments to a Delaware LLC (MPATRN LLC), which, in turn, contributed the
debt to LMC in exchange for a membership interest. Plaintiffs then purchased
additional interests in LMC from MPARTN. In 2003, LMC sold portions of the
original debt from 2001 and additional debt acquired in 2002. Defendant De
Castro West issued opinion letters that the strategies were legal, and that LMC
Recovery Fund would be treated as a partnership for tax purposes. Contributors to
the LMC Recovery Fund would be treated as the partners. (i.e., Plaintiffs,
Gramercy Local Markets and the Brazilian and Bulgarian companies). DeCastro
West also opined that LMC losses were allocable to plaintiffs as transferee and
holders of the original contributors’ interests.
Appellant-defendant Financial Strategy prepared the 2003 tax return for
LMC and the Texas-resident plaintiffs’ schedule K-1s. For the first time, LMC’s
2003 return listed a Texas, rather than a Connecticut, address. It also designated
Randall Lowry, a Texas resident at a Texas address, as the Tax Matters Partner for
9
the IRS to contact about the return. Plaintiffs’ petition alleges that, “[i]in reliance
on the 2003 Strategy Defendants’ advice, opinions, and instructions and the 2002
federal tax return for LMC Recovery Fund LLC, the Plaintiffs signed and filed
their federal tax returns for the year 2003 in approximately October 2004.” The
plaintiffs included the losses generated by the 2003 Distressed Debt Strategy on
their 2003 tax returns.
5. 2004-2008
A new distressed-debt strategy was pursued in 2004 and 2005 following the
same scheme and many of the same plaintiffs and defendants. LMC was not
utilized in the scheme, however, and defendant-appellant Financial Strategy did
not prepare returns related to this new strategy.
Financial Strategy continued preparing the LMC tax returns and related
Texas-resident schedule K-1s through at least 2008, and continued to list a Texas
address for LMC and its tax partner.
C. Financial Strategy Group, PLC’s Special Appearance
On June 19, 2009, Financial Strategy filed an unverified special appearance
alleging that it does not have sufficient minimum contacts with Texas to confer
specific personal jurisdiction over it. As evidence, Financial Strategy’s motion
attached the first of three affidavits of its Managing Member, Michael Andrew
Shaul. That affidavit explained that Financial Strategy is a Tennessee LLC
10
professional firm of Certified Public Accountants that is not licensed to do
business in Texas. It further averred that Financial Strategy does not maintain
offices, employees, property, post office boxes, or telephone listings in Texas.
None of Financial Strategy’s CPAs are licensed to practice in Texas, and Financial
Strategy has never conducted any advertising, solicitation, marketing, or other
promotional activities in Texas or directed at Texas. The Shaul affidavit also
stated:
None of the actions complained about by plaintiffs in this case
occurred in the State of Texas. To the contrary, the federal income tax
returns prepared by FSG at issue in this lawsuit concern LMC
Recovery Fund, LLC, a Delaware Limited Liability Company with its
principal place of business in Greenwich, Connecticut. None of the
work performed by FSG with regard to such tax returns was done in
Texas-all the work was done in FSG’s office in Tennessee. Moreover,
none of the tax returns at issue were sent by FSG to anyone in Texas.
Rather, such tax returns when prepared were sent to the managing
member of LMC Recovery Fund LLC, who was located in
Greenwich, Connecticut.
FSG has not committed any tort in Texas. FSG never entered
into any contract with Plaintiffs or anyone else located in Texas.
Plaintiff’s claims do not arise from and are not related to any activity
conducted by FSG in Texas. FSG has no substantial connection with
Texas arising from any action or conduct of FSG purposefully
directed toward Texas. FSG has never had continuous or systematic
contacts with Texas necessary for the Court to assert jurisdiction over
it.
FSG has never filed a lawsuit in Texas and has never been sued
before in Texas. FSG has never appointed the Texas Secretary of
State, or anyone else, as FSG’s agent for service of process in Texas
as FSG has not purposefully availed itself of the benefits or
protections of the laws of the great State of Texas.
11
It would be significantly burdensome for FSG to have to defend
itself in a Texas court room as this firm has no representatives,
employees or agents in Texas. All court appearances would request
representatives of FSG to travel from Memphis to Houston five
hundred eighty eight (588) miles which takes nearly 11 hours to drive-
stay in hotels and incur additional expenses. Moreover, such time
would reduce time available to service clients of the firm.
Plaintiffs’ responded that the Financial Strategy “made numerous purposeful
contacts with the State of Texas directly relating to the actions complained of my
Plaintiffs in this case.” Specifically, plaintiff’s response asserted, Financial
Strategy “willfully participated in a scheme to defraud Plaintiffs, all of whom are
Texas residents”; in furtherance, it “used a Texas licensed CPA to prepares six tax
returns and at least 50 partnership K-1s over a seven-year period for Texas-resident
entities, knowing the tax documents would be delivered to and used by Plaintiffs in
Texas.” Finally, Plaintiffs argued that Financial Strategy’s special appearance was
not verified, and that the Shaul affidavit is “replete with legal conclusions,
statements of fact that [Financial Strategy] has since admitted under oath are false,
and matters outside the affiant’s personal knowledge, as well as generally lacking
in credibility.”
Plaintiffs’ response attached evidence, including: (1) excerpts from Shaul’s
deposition, (2) evidence that Melinda Gunn, a CPA with a Texas license, worked
for Financial Strategy from 1999 to 2005, (3) engagement letters between
Financial Strategy and Gramercy for preparation of LMC’s tax returns, (4)
12
excerpts from LMC’s tax returns and its members schedule K-1s, (5) email
correspondence between Gramercy and Financial Strategy about Financial
Strategy’s 2002 and 2003 fees for tax preparation work and discussing details of
some returns, including LMCs, (6) a 2004 email from a Financial Strategy
employee asking Melinda Gunn (the Texas-licensed CPA) to revise the address
and signature line on a LMC tax return, (7) a 2003 email from BDO to Financial
Strategy responding to Financial Strategy’s questions about reporting of tax
shelters and opining that certain IRS disclosure requirements applying to tax
shelters do not apply to distressed debt transactions, and (8) a 2005 email from
Financial Strategy to Gramercy noting that LMC’s foreign partners and income
may trigger a withholding obligation.
Finally, plaintiffs proffered an affidavit by plaintiffs’ accountant explaining
that (1) the Investment Strategies were marketed to plaintiffs as packaged deals, (2)
plaintiffs viewed the consulting fees paid to BDO as including tax preparation fees
for entities necessary to the Investment Strategies, including LMC, (3) plaintiffs
did not solicit Financial Strategy to do work for LMC, (4) BDO made the decision,
for strategic reasons, to change LMC’s domicile to Texas after 2002, (5) for 2003-
2008, a majority of LMC’s owners (by numbers and percentage) were Texas
residents, (6) although schedule K-1s were usually delivered to plaintiffs in Texas
by BDO or Gramercy, on one or more occasions, Financial Strategy sent Schedule
13
K-1s directly to plaintiffs in Texas, and (7) Gramercy paid Financial Strategy for
preparing LMC’s tax returns, but the expenses was charged to LMC and, thus, the
cost was born by the partners.
In response to plaintiffs’ objections to the original Shaul Affidavit, the court
signed an order permitting Financial Strategy to “submit an amended affidavit
regarding its special appearance which deletes one or more of the statements
contained in the Affidavit of Mr. Andrew Shaul which was previously filed with
Financial Strategy’s Special Appearance, provided that no other revisions or
additions to such affidavit may be made.” Financial Strategy filed a second Shaul
Affidavit, which verified its special appearance and made numerous additions and
revisions. On plaintiffs’ motion, the trial court struck this second Shaul affidavit,
but stated again that Financial Strategy could file an amended affidavit verifying
its special appearance motion and otherwise complying with the court’s previous
order permitting deletions but no other revisions or additions.
At a hearing on the special appearance, plaintiffs focused on Shaul’s
credibility, pointing out discrepancies between the initial Shaul affidavit and
Shaul’s later deposition testimony. After the hearing, Financial Strategy filed a
third Shaul affidavit that largely mirrored his first,4 but included a verification of
4
The only difference in the factual recitations of the first and third Shaul affidavit
was the deletion, in the third affidavit, of a statement that Financial Strategy had
never had a Texas client.
14
the Financial Strategy’s special appearance motion. Plaintiffs’ moved to strike the
new affidavit, and the trial court denied Financial Strategy’s special appearance
without ruling on the motion to strike. Neither party requested findings of fact or
conclusions of law. Financial Strategy timely brought this interlocutory appeal.
ISSUE ON APPEAL
In a single issue, Financial Strategy argues that the trial court erred by
denying its special appearance.
STANDARD OF REVIEW
Whether a trial court has personal jurisdiction over a nonresident defendant
is a question of law. Michiana Easy Livin' Country, Inc. v. Holten, 168 S.W.3d
777, 790–91 (Tex. 2005); BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d
789, 794 (Tex. 2002). Because the trial court’s exercise of personal jurisdiction
over a nonresident defendant is one of law, an appellate court reviews the trial
court’s determination of a special appearance de novo. Moki Mac River
Expeditions v. Drugg, 221 S.W.3d 569, 574 (Tex. 2007); BMC Software, 83
S.W.3d at 794. However, the trial court must frequently resolve fact questions
before deciding the jurisdictional question. BMC Software, 83 S.W.3d at 794;
Capital Tech. Info. Servs., Inc. v. Arias & Arias, Consultores, 270 S.W.3d 741, 748
(Tex. App.—Dallas 2008, pet. denied) (en banc). In a special appearance, the trial
court is the sole judge of the witnesses’ credibility and the weight to be given their
15
testimony. Leesboro Corp. v. Hendrickson, 322 S.W.3d 922, 926 (Tex. App.—
Austin 2010, no pet.). We do not “disturb a trial court’s resolution of conflicting
evidence that turns on the credibility or weight of the evidence.” Ennis v. Loiseau,
164 S.W.3d 698, 706 (Tex. App.—Austin 2005, no pet.). When a trial court does
not issue findings of fact or conclusions of law, “all facts necessary to support the
judgment and supported by the evidence are implied.” BMC Software, 83 S.W.3d
at 795. We will affirm the trial court’s ruling on any legal theory that finds support
in the record. Dukatt v. Dukatt, 355 S.W.3d 231, 237 (Tex. App.—Dallas 2011,
pet. denied).
PERSONAL JURISDICTION
The Texas long-arm statute permits Texas courts to exercise jurisdiction
over nonresident defendants. See TEX. CIV. PRAC. & REM. CODE ANN. §§ 17.041–
.045 (Vernon 2008); PHC–Minden, L.P. v. Kimberly–Clark Corp., 235 S.W.3d
163, 166 (Tex. 2007); BMC Software, 83 S.W.3d at 795. The Texas long-arm
statute extends Texas courts’ personal jurisdiction “as far as the federal
constitutional requirements of due process will permit.” PHC–Minden, 235 S.W.3d
at 166 (quoting U–Anchor Adver., Inc. v. Burt, 553 S.W.2d 760, 762 (Tex. 1977)).
The Due Process Clause of the Fourteenth Amendment operates to limit the
power of a state to assert personal jurisdiction over a nonresident defendant. Asahi
Metal Indus. Co., Ltd. v. Superior Court of Cal., Solano Cnty., 480 U.S. 102, 108,
16
107 S. Ct. 1026, 1030 (1987); Helicopteros Nacionales de Colombia., S.A. v. Hall,
466 U.S. 408, 413–14, 104 S. Ct. 1868, 1872 (1984). Under the Due Process
Clause, personal jurisdiction over a nonresident defendant is constitutional when
the nonresident defendant has established minimum contacts with the forum state
and the exercise of jurisdiction comports with traditional notions of fair play and
substantial justice. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476, 105 S. Ct.
2174, 2184 (1985); Int’l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154,
158 (1945). Minimum contacts are sufficient to support the exercise of personal
jurisdiction if they show that the nonresident defendant has “purposefully availed”
itself of the privilege of conducting activities within the forum state, thus invoking
the benefits and protections of its laws. See Int’l Shoe Co., 326 U.S. at 319, 66
S.Ct. at 160; Michiana, 168 S.W.3d at 784.
The plaintiff bears the initial burden of pleading sufficient allegations to
bring a nonresident defendant within the provisions of the Texas long-arm statute.
Kelly v. Gen. Interior Constr., Inc., 301 S.W.3d 653, 658 (Tex. 2010); Moki Mac,
221 S.W.3d at 574. The nonresident defendant then has the burden of negating all
bases of jurisdiction alleged in the plaintiff’s petition. Kelly, 301 S.W.3d at 657–
58; Moki Mac, 221 S.W.3d at 574. The defendant can introduce evidence
disproving the plaintiff's factual allegations, or show that the defendant’s contacts
with the forum state “fall short of purposeful availment,” or demonstrate that
17
“traditional notions of fair play and substantial justice are offended by the exercise
of jurisdiction.” Washington DC Party Shuttle, LLC v. IGuide Tours, 406 S.W.3d
723, 728 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) (en banc). If
specific jurisdiction is at issue, then the defendant also can show that the plaintiff’s
claims do not arise from the defendant’s contacts with Texas. Id.
PARTIES’ ARGUMENTS
Financial Strategy contends that the trial court’s exercise of specific personal
jurisdiction over it was improper, as it lacked sufficient minimum contacts with
Texas. According to Financial Strategy, it was Gramercy who steered plaintiffs to
the other defendants—including Financial Strategy—for legal, financial,
investment and tax advice and other products related to the Investment Strategies.
Because Financial Strategy “did not purposefully target, recruit or in any other way
promote its services” to the Texas plaintiffs, Financial Strategy contends that its
connection with Texas is too attenuated to suffice as minimum contacts.
Moreover, Financial Strategy insists, plaintiffs’ claims do not arise from any
connection Financial Strategy has to Texas because it was Gramercy, a non-Texas
entity, that hired Financial Strategy to prepare LMC’s tax return and the plaintiffs’
K-1s. Alternatively, Financial Strategy contends that subjecting it to personal
jurisdiction in Texas offends traditional notions of fair play and substantial justice
because it would be burdensome for Financial Strategy to defend itself in Texas,
18
where is has no offices, representatives, employees, or agents. In support,
Financial Strategy points out that it has only twelve employees, “all of whom
contribute significantly to the overall productivity” of Financial Strategy and
whose absence would “significantly reduce time available to serve the firm’s
clients.”
Plaintiffs respond with three reasons the trial court did not err in denying
Financial Strategy’s special appearance, i.e., (1) Financial Strategy failed to meet
its burden to negate all bases of jurisdiction because the only evidence offered—
the Shaul affidavits—were sham affidavits that the trial court was not required to
consider, (2) plaintiffs presented legally and factually sufficient evidence to
support the trial court’s ruling, and (3) Financial Strategy failed to verify the
special appearance.
ANALYSIS
The parties do not dispute that plaintiffs pleaded sufficient jurisdictional
facts with regard to Financial Strategy to invoke the long Texas long-arm statute.
See TEX. CIV. PRAC. & REM. CODE § 17.042. Thus, the question presented is
whether Financial Strategy negated each pleaded basis for jurisdiction.
Although our review is de novo, we must defer to the trial court’s resolution
of fact questions. BMC Software, 83 S.W.3d at 794. Here, because the trial court
did not make express findings in support of its denial of Financial Strategy’s
19
special appearance, we imply all facts necessary to support the judgment that are
supported by the evidence. Id. The trial court had evidence on the jurisdictional
question in the form of the Shaul affidavit,5 the evidence attached to plaintiffs’
response to Financial Strategy’s special appearance, and excerpts of the Shaul
deposition played at the special appearance hearing.
A. Plaintiffs’ challenges to the Shaul affidavit
As a threshold matter, we must address plaintiffs’ argument that much, if not
all, of Shaul’s affidavit must be disregarded as a sham and as improperly
containing legal conclusions. Plaintiffs also contend that Financial Strategy failed
to properly verify its special appearance motion.
1. Sham affidavit
Plaintiffs point to the following alleged discrepancies between Shaul’s
affidavit and excerpts of Shaul’s deposition testimony the court heard at the
hearing.
-In Shaul’s affidavit, he states that “None of Financial Strategy’s
CPAs are licensed to practice in Texas nor do any such CPAs practice
in Texas.” During his deposition, however, Shaul acknowledged that
Melinda Gunn, who worked for Financial Strategy in Tennessee until
2005 and who performed work on LMC Recovery Fund’s tax return,
holds a Texas CPA license.
5
Unless noted otherwise, references to the Shaul affidavit are to the third Shaul
affidavit—the last one filed.
20
-In Shaul’s affidavit, he states that the “tax returns at issue in this
lawsuit concern LMC Recovery Fund, a Delaware Limited Liability
Company with its principal place of business in Greenwich,
Connecticut.” In Shaul’s deposition, however, he acknowledged
that—in 2003 and subsequent years—the address on LMC’s return
changed from a Connecticut address to a Texas address, which could
indicate that its primary place of business is Texas.
-In Shaul’s affidavit, he states that “[n]one of the tax returns at issue
were sent by [Financial Strategy] to anyone in Texas.” During his
deposition, Shaul agreed that he “do[es]n’t actually know for sure that
Mr. Burford or someone else didn’t send copies or even originals of
the tax returns to the Texans.”
A “sham affidavit” generally refers to an affidavit that contradicts early
deposition testimony, without any explanation for the change in testimony, for the
purpose of creating a fact issue to defeat summary judgment. Farroux v. Denny’s
Rests., Inc., 962 S.W.2d 108, 111 (Tex. App.—Houston [1st Dist.] 1997, no pet.).
Assuming that the sham affidavit doctrine is applicable in the context and posture
presented here, we conclude that these three alleged “contradictions” do not render
Shaul’s affidavit a sham affidavit. The second and third topics—i.e. Shaul’s belief
about LMC’s primary place of business and whether copy of a tax return was sent
to someone in Texas—do not represent contradictions, as Shaul’s deposition
testimony only establishes that he is not sure about either. Id. at 111 n.1 (affidavit
is not a sham if inconsistency is caused by witnesses’ confusion, or if witness
discovers additional, relevant information after deposition).
21
With regard to the first topic—i.e., whether Financial Strategy employs
CPAs that hold Texas licenses—the record contains an explanation for that
discrepancy. Gunn, the Texas-licensed CPA, no longer worked for Financial
Strategy at the time Shaul’s affidavit was made, and there was some confusion
about which Financial Strategy division or related company she had been
employed by. E.g., Naples v. Lesher, No. 06-13-00059-CV, 2014 WL 1856846, at
*5 n.8 (Tex. App.—Texarkana May 8, 2014, no pet.) (mem. op.) (rejecting
application of sham affidavit doctrine because affidavit did not directly conflict
with deposition testimony, and contradiction between affidavit and earlier
correspondence was explained).
As the San Antonio Court of appeals has noted, “[m]ost differences between
a witness’s affidavit and deposition are more a matter of degree and details than
direct contradiction,” and this “reflects human inaccuracy more than fraud.” Cantu
v. Peacher, 53 S.W.3d 5, 10 (Tex. App.—San Antonio 2001, pet. denied). Thus, if
an affidavit is generally consistent with prior testimony, but details differ,
inconsistencies create opportunity for impeachment, not vitiating the affidavit. Id.
Each of these three alleged inconsistencies was pointed out to the trial court
at the special appearance hearing, and the court did not strike the affidavit. While
we assume the trial court resolved credibility determinations in plaintiffs’ favor,
we reject the argument that inconsistencies in Shaul’s testimony require that his
22
affidavit be disregarded in its entirety. E.g., Youngblood v. U.S. Silica Co., 130
S.W.3d 461, 470 (Tex. App.—Texarkana 2004, pet. denied) (subtle inconsistencies
or conflicts between deposition testimony and affidavit do not justify disregarding
affidavit; such differences can be resolved by factfinder).
2. Conclusory
Plaintiffs also contend that the Shaul affidavit contains the following legal
conclusions, which they argue should not be considered evidence,
 FSG has not committed any tort in Texas
 FSG is . . . not required to maintain a registered agent for service in
Texas
 FSG does not do business in Texas
 FSG never entered into any contract with Plaintiffs or anyone else
located in Texas
 FSG’s claims do not arise from and are not related to any activity
conducted with Texas arising from any action or conduct of FSG
purposefully directed toward Texas
 FSG has never had continuous or systematic contacts with Texas
necessary for the Court to assert jurisdiction over it
 . . . FSG has not purposefully availed itself of the benefits or
protections of the laws of the great State of Texas
We agree. An affiant’s legal conclusions lack probative value, and to the
extent Shaul’s affidavit contains legal conclusions, we will not credit those
conclusions in reviewing the trial court’s denial of Financial Strategy’s special
appearance. Wright v. Sage Eng’g, Inc., 137 S.W.3d 238, 250 n.8 (Tex. App.—
Houston [1st Dist.] 2004, pet. denied) (affiant’s testimony that he “committed no
23
torts in Texas is a legal conclusion without any probative force” in special
appearance proceeding).
3. Verification
Financial Strategy’s special appearance was not verified. Shaul’s third
affidavit filed in support of the special appearance, however, contains a verification
of the facts in both the motion and the affidavit. Plaintiffs’ acknowledge this, but
argue that we should not allow Financial Strategy to verify its special appearance
with a “sham affidavit.” They argue that this is an “alternative, and unchallenged,
ground” that the trial court’s order can be “summarily affirmed.” We have rejected
the argument that Shaul’s affidavit is a sham affidavit, and hold that Shaul’s
affidavit sufficed to verify Financial Strategy’s special appearance. Cf. IGuide
Tours, LLC, 406 S.W.3d at 730–31 (affidavit in support of special appearance that
did not expressly verify facts in special appearance was sufficient because affidavit
contained same jurisdictional facts as special appearance).
B. Evidence to consider
Plaintiffs no longer contend that Texas can exercise general jurisdiction over
Financial Strategy. Disregarding conclusory evidence and implying “all facts
necessary to support the judgment and supported by the evidence,” BMC Software,
83 S.W.3d at 795, the record presents us with the following facts relevant to the
issue of specific jurisdiction:
24
 In 2000, BDO marketed certain Investment Strategies to Plaintiffs,
who in turn hired BDO and Gramercy to implement the strategies.
 LMC was Delaware LLC formed in 2000 for use implementing the
plaintiffs’ Investment Strategies. Through this implementation, the
Texas-resident plaintiffs acquired ownership interests in LMC. BDO
prepared LMC’s tax returns in 2000 and 2001.
 Financial Strategy is a Tennessee LLC hired by nonresident Gramercy
beginning in 2002 to prepare LMC tax returns and the corresponding
Schedule K-1s. The 2002 LMC tax return prepared by Financial
Strategy listed a Connecticut address for LMC, and a nonresident
Gramercy affiliate as the tax matters partner for the IRS to contact in
case of questions. The plaintiffs’ 2002 Schedule K-1s listed their
Texas addresses.
 In 2003, LMC’s address changed to a Texas address, and its tax
matters partner was changed to a Texas resident. The plaintiffs’
Schedule K-1s listed their Texas addresses.
 Plaintiffs’ claims against Financial Strategy involve only its
preparation of LMC’s 2002 and 2003 tax returns.
 Financial Strategy prepared LMC’s tax returns and corresponding K-
1s in Tennessee. Financial Strategy has a former employee who
worked in Tennessee but who held a Texas CPA license who may
have worked on LMC tax returns and K-1s.
 Financial Strategy’s usual practice was to provide LMC’s tax returns
and K-1s to Gramercy in Connecticut for filing and distribution to
plaintiffs and other partners, but these materials may have been sent
by Financial Strategy directly to a plaintiff in Texas at least once.
 Financial Strategy was paid by Gramercy for preparing LMC’s tax
returns and K-1s.
 Litigation in Texas would be burdensome for Financial Strategy, as it
has no representative, employees or agents in Texas.
25
C. Financial Strategy’s contacts are not sufficient to confer jurisdiction.
To determine if the trial court properly exercised personal jurisdiction over
Financial Strategy, we must assess these contacts to determine if Financial Strategy
purposefully availed itself of the privilege of conducting activities in Texas. This
“purposeful availment” inquiry is a three-pronged test. Moki Mac, 221 S.W.3d at
575. First, only the defendant’s contacts with the forum are relevant. Id. Second,
the contacts on which jurisdiction depends must be purposeful, rather than random,
fortuitous, or attenuated. Id. Third, “the ‘defendant must seek some benefit,
advantage or profit by “availing” itself of the jurisdiction.’” Id. (quoting Michiana,
168 S.W.3d at 785); Motor Components, LLC v. Devon Energy Corp., 338 S.W.3d
198, 201–02 (Tex. App.—Houston [14th Dist.] 2011, no pet.). We agree with
Financial Strategy that its contacts with Texas fall short of what is required to
justify exercise of jurisdiction.
The crux of plaintiffs’ claims is that they were sold Investment Strategies
that utilized improper tax shelters, and that plaintiffs were damaged by the hefty
professional fees, taxes, and penalties. Although Financial Strategy later started
preparing tax returns for an entity necessary to carrying out the Investment
Strategies, i.e., LMC, it is undisputed that Financial Strategy was not initially
involved in developing, marketing, or implementing the strategies.
26
The record reflects that—after the Investment Strategies were in place and
had been implemented—a friend of Shaul’s who was a partner in BDO’s office in
Tennessee, approached Shaul in Tennessee to ask whether Financial Strategy had
capacity to prepare some partnership returns that BDO was no longer interested in
preparing. When Shaul expressed interest, the BDO partner introduced Shaul to
Gramercy. Gramercy eventually hired Financial Strategy to prepare tax returns for
several partnerships, including LMC. Gramercy is not a Texas resident, Financial
Strategy is not a Texas resident and—at the time Financial Strategy was engaged
by Gramercy—LMC was a Delaware company with a Connecticut address.
Plaintiffs, however, emphasize that Financial Strategy knew that Texas-
resident plaintiffs would receive and use the LMC tax return documents prepared
by Financial Strategy in preparing their individual tax returns. But “that a
defendant might have foreseen or knows the brunt of the injury will be felt by a
particular resident in a forum state is not enough to establish minimum contacts.”
Asshauer v. Glimcher Realty Trust, 228 S.W.3d 922, 933 (Tex. App.—Dallas
2007, no pet.) (citing Michiana, 168 S.W.3d at 788–89). To establish minimum
contacts, a “defendant’s contacts much be purposeful rather than fortuitous.” GJP,
Inc. v. Ghosh, 251 S.W.3d 854, 869 (Tex. App.—Austin 2008, no pet.).
In 2003, the second of the two relevant years that Financial Strategy
prepared LMC’s tax returns, BDO advised plaintiffs to change LMC’s place of
27
business from Connecticut to Texas and to designate a Texas-resident tax matters
partner. Accordingly, plaintiffs argue, there can be no doubt at that point that
Financial Strategy “knew it was doing work for the benefit of a Texas resident.”
LMC’s address change, however, was the result of unilateral actions by third
parties, i.e., BDO and plaintiffs. Such independent acts cannot create the minimum
contacts necessary to demonstrate that Financial Strategy purposefully created
additional contacts with Texas. Michiana, 168 S.W.3d at 785 n.28 (citing Burger
King, 417 U.S. at 475 (purposeful availment requirement “ensures that a defendant
will not be haled into a jurisdiction solely as a result of . . . the unilateral activity of
another party or a third person”)).
Also lacking here is a showing that Financial Strategy sought some “benefit
advantage, or profit by availing itself of the jurisdiction.” GJP, Inc., 251 S.W.3d at
869. Financial Strategy was paid by Gramercy for preparation of LMC’s tax
returns and Schedule K-1s. Although plaintiffs proffered evidence that they
considered the consulting fees they paid to BDO to include the cost of preparing all
relevant tax returns for entities needed to implement the Investment Strategies,
“the bare fact that a defendant receives some benefit, advantage, or profit from
Texas does not necessarily mean that it has purposefully availed itself of the state.”
GJP, 251 S.W.3d at 869; see also Michiana, 168 S.W.3d at 788 (“[F]inancial
benefits accruing to the defendant from a collateral relation to the forum State will
28
not support jurisdiction if they do not stem from a constitutionally cognizable
contact with that State.”). Here, the fact that Financial Strategy was paid fees by a
non-Texas entity to prepare tax return documents that would be used, in part, by
Texas residents is not enough to demonstrate that Financial Strategy sought a
“benefit, advantage, or profit by availing itself of the jurisdiction.” GJP, Inc., 251
S.W.3d at 869 (emphasis added).
In Michiana—a case holding that Texas courts lacked personal jurisdiction
over a nonresident corporation that sold an RV to a Texas resident over the
phone—the supreme court noted that a nonresident corporation “[c]ertainly ought
to be subject to suit in any jurisdiction where it ‘enjoys the benefits and protection
of the laws of that state.” 168 S.W.3d at 787; see also Moncrief Oil Int’l, Inc. v.
OAO Gazprom, 414 S.W.3d 142, 158 (Tex. 2013) (holding defendant that
“attended two Texas meetings with a Texas corporation and accepted alleged trade
secrets created in Texas regarding a potential joint venture in Texas with the Texas
corporation . . . sought out Texas and the benefits and protections of its laws” for
purpose of establishing personal jurisdiction). But in this case, as in Michiana, it
is “hard to imagine what possible benefits and protections [Financial Strategy]
enjoyed from Texas law.” 168 S.W.3d at 787. “Indeed, it is hard to imagine how
[Financial Strategy] would have conducted its activities any differently if Texas
had no law at all.” Id.
29
We likewise find the other contacts relied upon by Plaintiffs to be too
attenuated. The record reflects that Financial Strategy employed a CPA in
Tennessee that lived and worked in Tennessee, but who held a Texas CPA license
and may have worked on LMC’s tax return. Plaintiffs cite no authority, and we
have not located any, holding that that employing a Texas CPA in another state
demonstrates minimum contacts with Texas absent evidence of that employee
performing work in Texas. Likewise, we decline to hold that the Financial
Strategy potentially mailing a tax return or Schedule K-1s to plaintiffs in Texas (as
directed by a Gramercy, Financial Strategy’s non-Texas client) is a purposeful,
rather than random, fortuitous, or attenuated contact with Texas. See Moki Mac
River Expeditions, 221 S.W.3d at 575. This is especially true given that there is no
evidence indicating when these tax documents were mailed, and if they even relate
to the 2002 or 2003 tax years that are relevant to plaintiffs’ claim against Financial
Strategy. See id. at 585 (“[F]or a nonresident defendant’s forum contacts to
support an exercise of specific jurisdiction, there must be a substantial connection
between those contacts and the operative facts of the litigation.”).
We thus conclude that the trial court erred in concluding that Financial
Strategy had sufficient minimum contacts with Texas to confer Texas courts with
personal jurisdiction over it.
30
CONCLUSION
We reverse the trial court’s order denying Financial Strategy Group PLC’s
special appearance and render judgment granting the special appearance and
dismissing claims against Financial Strategy Group, PLC.
Sherry Radack
Chief Justice
Panel consists of Chief Justice Radack and Justices Bland and Huddle.
31
APPENDIX C
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, LAW DIVISION
Douglas Coe, et al., )
)
Plaintiffs, )
)
v. ) No. 12 L 13691
)
BDO Seidman, et.aL ) Commercial Calendar T
)
Defendants. ) Judge John C. Griffin
)
)
)
OPINION
This cause is before the Court on Defendants Gramercy Advisors, L.L.C.
("Gramercy Advisors"), Gramercy Financial Services, LLC ("GFS"), Gramercy
Capital Recovery Fund, LLC ("GCRF''), Gramercy Emerging Markets, LLC
("GEM"), and KSHER AA, LLC's ("KSHER," and collectively with Gramercy
Advisors, GFS, GCRF, and GEM, "Gramercy" or Gramercy Defendants") , and
Defendant Marc Helie's ("Helie") motions to dismiss Plaintiffs Douglas Coe ("Coe"),
Jacqueline Coe, GFLIRB, LLC, ALAKE, LLC, and DBIICHA, LLC's (collectively
"Plaintiffs" or "the Coes") complaint pursuant to section 2-301 of the Illinois Code of
Civil Procedure.
I. BACKGROUND
The following is a brief summary of the facts contained in Plaintiffs' first
amended complaint. Plaintiffs allege that BDO Seidman, LLP ("BDO"), multiple
BDO employees, Gramercy, Helie and other participants (all collectively
"Defendants") defrauded Plaintiffs through t he design, marketing, sale, and
implementation of tax-reducing investment strategies that Defendants allegedly
knew the Internal Revenue Service ("IRS") would disallow as illegal and classify as
an abusive tax shelter ("the "Distressed Debt Strategy") . Thereafter, Plaintiffs filed
their first amended complaint against Gramercy and other defendants, including
Helie. Gramercy and Helie both bring motions to dismiss Plaintiffs' first amended
complaint for lack of personal jurisdiction.
Page 1 of9
II. GRAMERCY'S MOTION TO DISMISS
Gramercy contends that it is not subject to personal jurisdiction in Illinois
and that Plaintiffs' first amended complaint should be dismissed pursuant to
section 2-301. See 735 ILCS 5/2-301 ("[A] party may object to the court's jurisdiction
.. . on the ground that the party is not amenable to process of a court of this
State ...").
Illinois Courts analyze a nonresident defendant's forum contacts within the
framework of two recognized forms of personal jurisdiction: general and specific
jurisdiction. See Bolger v. Nautica Int'l, Inc., 369 Ill. App. 3d 947, 951-52 (2nd Dist.
2007). Thus, the Court must initially determine whether Gramercy is subject to
general jurisdiction.
A. GENERAL JURISDICTION
The United States Supreme Court held in Daimler AG v. Bauman, 134 S. Ct.
746, 761 (2014), that a corporate defendant ordinarily may be subject to general
jurisdiction only in its state of incorporation or the state of its principal place of
business. (finding that it is insufficient that the defendant "engages in a substantial
continuous, and systematic course of business" in a forum state); (Jd. at 761 n. 19)
(finding that for general jurisdiction to apply the course of business must be "so
substantial and of such a nature as to render the corporation at home in the state.").
In t heir response, Plaintiffs do not contend that Gramercy is subject to
general jurisdiction. Morecambe Mar., Inc. v. Nat'l Bank of Greece, S.A., 354 Ill.
App. 3d 707, 710 (1st Dist. 2004) (finding that it is well-established t hat the
plaintiff bears t he burden of establishing a valid basis for asserting jurisdiction over
the defendant). Further, Gramercy is not incorporated in Illinois nor has its
principal place of business in Illinois. Therefore, Gramercy is not subject to general
jurisdiction.
B. SPECIFIC JURISDICTION
The Illinois long-arm statute authorizes Illinois courts to exercise specific
jurisdiction over nonresident defendants. 735 ILCS 5/2-209. Under the Illinois long-
arm statute, an individual is subject to specific jurisdiction, whether or not they are
a citizen or resident of Illinois, if the defendant performs any contract or promise
t hat is substantially connected with the State of Illinois. 735 ILCS 5/2-209(a)(7). In
addition, t he Illinois long-arm statute includes a "catch all" provision whereby a
court may exercise jurisdiction over a person on any basis permitted by the Illinois
Constitution and the United States Constitution. 735 ILCS 5/209(c).
Page 2 of 9
Three criteria are considered in determining whether specific jurisdiction
exists under the catch-all provision: "whether (1) the nonresident defendant had
'minimum contacts' with [the forum] such that he had 'fair warning' that he may be
required to defend himself there; (2) the action arose out of or relates to the
defendants' contacts with [the forum]; and (3) it is reasonable to require the
defendants to litigate in [the forum state]." Morgan, Lewis & Bockius LLP v. City of
E. Chi., 401 Ill. App. 3d 947, 954 (1st Dist. 2010); see also Int'l Shoe Co. v.
Washington, 326 U .S. 310, 316 (1945) ("Under federal due process standards, a
court may exercise personal jurisdiction over a nonresident defendant if the
defendant has had sufficient "minimum contacts" with the forum state such that
maintenance of the suit in the forum does not offend "traditional notions of fair play
and substantial justice."); Burger King Corp. v. Rudzewicz, 471 U .S. 462, 472 (1985)
("fair warning... gives a degree of predictability . . [and] . . . allows potential
defendants to structure their primary conduct with some minimum assurance as to
where that conduct will and will not render them liable to suit.") (internal
quotations omitted).
a. Minimum Contacts
The first step of the specific jurisdiction analysis reqmres that the
nonresident defendant have minimum contacts and fair warning within the forum.
See Morgan, Lewis & Bockius LLP, 401 Ill. App. 3d at 954. The requirements of
minimum contacts and fair warning are satisfied if "the defendant has (1)
purposefully directed his activities at Illinois residents, (2) reached out beyond one
state to create continuing relationships with citizens of another state, or (3)
purposefully derived benefits from his interstate activities." Kalata v. Healy, 312 Ill.
App. 3d 761, 769 (1st Dist. 2000).
Gramercy maintains that it does not have the minimum contacts or fair
warning within Illinois. Gramercy includes the supporting affidavit of Robert
Lanava ("Lanava"), the chief compliance officer and head of operations of Gramercy.
The affidavit includes the following facts: that Plaintiffs (Georgia, Delaware, and
Connecticut) and Gramercy Defendants (Connecticut and Delaware) reside outside
of Illinois; that Plaintiffs and Gramercy never met in Illinois; that no
communications between the parties was sent to or from Illinois; that all
transactions concerning Plaintiffs in which the Gramercy Defendants were involved
took place in Connecticut, New York, or outside the United States; and that none of
Gramercy's officers, directors, employees or agents ever traveled to or conducted
business in Illinois.
Page 3 of9
In response, Plaintiffs argue that Gramercy purposefully directed its
activities at Illinois by engaging with BDO, an Illinois-headquartered company, to
develop and promote the Distressed Debt Strategy to the Coes.
In reply, Gramercy argues that Plaintiffs' affidavits fail to offer any specific
or credible facts to rebut the supporting affidavit of Lanava.
1. Competing Affidavits
When a court is faced with competing affidavits submitted on a motion
challenging personal jurisdiction, "conflicts will be resolved in favor of the plaintiff
for the purpose of establishing whether a prima facie case for personal jurisdiction
has been shown." Keller v. Henderson, 359 Ill. App. 3d 605, 611 (2nd Dist. 2005) .
However, in order to establish a genuine conflict, Plaintiffs must come forward with
credible evidence specifically countering the facts alleged in Gramercy's affidavit.
See Kutner v. DeMassa, 96 ll. App. 3d 243, 248 (1st Dist. 1981) (taking the
defendant's affidavit to be true where the plaintiffs counter-affidavit failed to rebut
statements that defendant did not have an agency relationship with other parties
and was not part of any alleged conspiracy).
Here the Court notes that Plaintiffs' affidavits do not specifically rebut the
facts contained in the Lanava's affidavit, nor do Plaintiffs' affidavits make
substantive statements regarding jurisdiction in Illinois (see Section III. A, supra).
Thus, for purposes of adjudicating this motion, the unrebutted statements in
the affidavit of Lanava must be taken as true. See Kutner, 96 ll. App. 3d at 248.
Even assuming Plaintiffs raised a genuine conflict within the affidavits and all
conflicts are resolved in their favor, the Court finds that Plaintiffs fail to show that
Gramercy has the necessary minimum contacts and 'fair warning' in Illinois.
2. Illinois-Based Counsel
Plaintiffs contend that Gramercy utilized Illinois based-counsel, Richard
Lipton, ("Lipton"), an attorney in the Chicago office of McDermott Will & Emery
("MWE"), to help prepare the documents and opinions necessary to market and
implement the Distressed Debt Strategy. However, even if Gramercy hired an
Illinois lawyer, the Supreme Court held in Walden v. Fiore, 134 S. Ct. 1115, 1122
(2014), that a "minimum contacts analysis looks to the forum itself, not the
defendant's contacts with persons who reside there." Here Plaintiffs draw only a
possible connection with Lipton, an Illinois resident, but they fall short of
establishing a connection between Gramercy and the forum itself. Thus, the Court
Page 4 of 9
finds that Plaintiffs' argument regarding Lipton does not establish that Gramercy
had minimum contacts with Illinois.
3. Illinois-Based Bank and Wire Transfer
Plaintiffs argue that Gramercy routed wire transfers regarding client
investments in the Distressed Debt Strategy through a bank in Illinois. However,
the record shows that Gramercy had an account with Citibank in New York and
that Citibank used First Chicago Bank as a correspondent bank to facilitate the
interstate transfer of funds. Thus, the Court finds that this connection is far too
distant to establish that Gramercy had minimum contacts with Illinois.
4. Invoices and Fees with BDO
Plaintiffs maintain that Gramercy sent invoices to BDO's offices in Illinois
and that this creates a connection between Gr9-mercy and the forum. The Court
finds that BDO's decision to process invoices in Illinois is not attributable to
Gramercy under a minimum contacts analysis. Rather, the fees in question were
remitted to Gramercy by clients located throughout the country and merely routed
through Illinois by BDO for administrative purposes. Therefore, Gramercy did not
establish minimum contacts by sending invoices and fees to BDO
5. Communications with Illinois
Plaintiffs argue that Gramercy had numerous communications directed at
Illinois. However, the record shows that many of the cited communications do not
show Gramercy directing its activities "to the forum itself'. See Walden, 134 S. Ct.
at 1122. The Court also notes that when as here a "contract is neither negotiated
nor performed in the forum state, communications ... into the forum state,
standing alone, are insufficient to establish specific jurisdiction over a nonresident
defendant." CF Indus. v. Ben-Trei, Ltd., 09 C 1353, 2009 WL 2765972 at *3 (N.D.
Ill. Aug. 27, 2009). Therefore, Gramercy does not establish minimum contacts by
sending communicating with BDO
Finally, the Court notes that Gramercy did not have 'fair warning' as both
Plaintiffs and Gramercy Defendants reside outside of Illinois and none of the
alleged transactions in which the Gramercy Defendants were involved, concerning
Plaintiffs, took place in Illinois.
Page 5 of 9
Therefore, the Court finds that Gramercy does not have t he necessary
minimum contacts with Illinois arising from its relationship with Plaintiffs such
that it had fair warning that it may be required to defend itself in Illinois.
b. Arising Out of Forum
The second part of the specific jurisdiction analysis requires that an action
arise out of or relate to Gramercy's forum contacts. Viktron Ltd. Partnership v.
Program Data, Inc., 326 Ill. App. 3d 111, 121 (1st Dist. 2001). Gramercy argues
that Plaintiffs' claims do not directly or indirectly arise out of Gramercy's forum
contacts with Illinois. Likewise, Gramercy contends that it never had an agency
relationship with BDO or any non-Gramercy Defendant.
In response, Plaintiffs contend that their cause of action arises from the
Distressed Debt Strategy that Gramercy allegedly developed and marketed through
its contacts with BDO and Lipton in Illinois.
The Court finds that Plaintiffs' claims do not directly arise out of Gramercy's
limited communications with residents of Illinois. First, whether or not BDO or non -
Gramercy defendants are subject to the Court's jurisdiction is irrelevant to the
Gramercy Defendants, as jurisdiction must be independently assessed for each
defendant. S ee Rush v. Savchuk, 444 U.S. 320, 332 (1980). Specific jurisdiction
must arise from a defendant's forum contacts, not the contacts of a third-party. See
Walden, 134 S. Ct. 1115 (2014) ("[T]he relationship must arise out of contacts that
the defendant himself creates with the forum state."). Here Plaintiffs do not
establish Gramercy's forum contacts. Instead, they only provide a limited
connection to Illinois through the non -Gramercy defenda nts.
Second, Illinois Courts have held that a plaintiffs cause of action must arise
directly from the defendant's forum contacts. See Spartan Motors, Inc. v. Lube
Power, Inc., Co., 321 IlL App. 3d 832, 857 (1st Dist. 2001). Here the communications
that Plaintiffs cite do not involve substantive discussions of Plaintiffs' investments
and fail to show any Gramercy activity directed at the forum.
Therefore, the Court finds that Plaintiffs' claims against Gramercy do not
arise out of Illinois .
c. Reasonable to Require Litigation
The t hird part of the specific jurisdiction analysis requires that the Court
consider whether it is reasonable to require the nonresident defendants to litigate
in the forum state. See Morgan, L ewis & Bockius LLP, 401 IlL App. 3d at 954; see
also Rollins v. Ellwood, 141 Ill. 2d 244, 275 (1990). Under t h e Illinois Constitution's
due process guarantee, "a court may exercise jurisdict ion over a defendant only
Page 6 of 9
when it is fair, just and reasonable to require a nonresident defendant to defend an
action in Illinois considering the quality and nature of the defendant's acts which
occurred in Illinois or which affect interests located in Illinois." The Court considers
three relevant factors! in determining t h e reasonableness of requiring t he
defendant to litigate in Illinois: (1) the burden on the defendant of defending t he
action in t he forum state, (2) the forum state's interest in adjudicating t h e dispute,
and (3) the plaintiffs interest in obtaining effect ive relief. Russell v. SNFA, 2013 IL
113909).
Plaintiffs argue that t here is little burden on Gramercy in defending this
action in Illinois because it previously retained counsel and used a bank account in
Illinois. Pla intiffs further contend that the State of Illinois has an interest in
adjudicating the dispute given Gramercy's involvement in the Distressed Debt
Strategy. Finally, Plaintiffs maintain that obtaining effective relief is advanced by
keeping Gramercy in the instant lawsuit rather than having to institute multiple
proceedings in various jurisdictions.
The Court finds that it is not reasonable to require Gramercy to defend this
action as maintenance of the inst ant matter offends the traditional notions of fair
play and substantial justice. Plaintiffs have no interest in obtaining effective relief
in Illinois as a practically identical case to this one is currently pending in th e
Southern District of New York. See Gramercy Advisors, LLC, et al. v. BDO
Seidman, LLP, et al. , Docket No. CV-2013·9069 (VEC) (S.D.N.Y.). Finally, Illinois
has no interest in th~s dispute, as most Gramercy Defendants and Plaintiffs reside
elsewhere.
C. CONCLUSION
Based on the foregoing, Gramercy is not subject to personal jurisdiction in
Illinois and its motion to dismiss for lack of personal jurisdiction is GRANTED .
1
Neither party discusses t he interests of the other affected forums in the efficient judicial
resolution of the dispute and the advancement of substantive social policies.
Page 7 of 9
III. HELIE'S MOTION TO DISMISS
Defendant Helie, a former employee of Gramercy, Joms m the
contemporaneously-filed motion by Gramercy Defendants to dismiss this action for
lack of personal jurisdiction and adopts all arguments therein which are applicable
to him.
A. GENERAL JURISDICTION
Plaintiffs do not attempt to allege that Helie is subject to general jurisdiction.
(see Section II. A, infra.). Further, Helie resides in New York and he does not have
the type of pervasive in-state contacts warranting this Court to exercise general
jurisdiction over a nonresident defendant. Therefore, Helie is not subject to general
jurisdiction.
B. SPECIFIC JURISDICTION
The Court considers whether the three criteria for specific jurisdiction are
met. See Morgan} Lewis & Bockius LLP, 401 Ill. App. 3d at 954. Plaintiffs plead in
their complaint that Helie "has done and is doing business in Illinois" and "that he
has committed torts in Illinois."
Helie contends that these allegations represent bare legal conclusions "which
do no more than parrot statutory provisions for long-arm jurisdiction." Helie further
argues that there are no facts pled in the complaint demonstrating any nexus
between Plaintiffs' causes of action, Helie, and Illinois.
The Court finds that Helie is not subject to specific jurisdiction in Illinois.
First, Plaintiffs do not present credible evidence specifically countering the facts
alleged in Helie's affidavit. See Kutner, 96 11. App. 3d at 248.
Thus, for purposes of adjudicating this motion, the unrebutted statements in the
affidavit of Helie must be taken as true. See Kutner, 96 ll. App. 3d at 248.
These unrebutted statements show that Helie is a New York resident and is
not domiciled in Illinois; Plaintiffs are Georgia residents; Plaintiffs and Helie never
met in Illinois and never communicated to or from Illinois; none of the transactions
underlying the parties' investments took place in Illinois; and the relevant contracts
were drafted, performed, and executed outside of Illinois.
Second, these unrebutted facts show that Helie does not have the necessary
minimum contacts with Illinois to be subject to specific jurisdiction. The Court is
also unconvinced by Plaintiffs' arguments that Helie's communications, and his
various connections with Gramercy, somehow create these minimum contacts with
Illinois or provide him with 'fair warning.'
Page 8 of9
Third, Illinois Courts have held that a plaintiffs cause of action must arise
directly from the defendant's forum contacts. See Spartan Motors, Inc. v. Lube
Power, Inc., Co., 321 Ill. App. 3d 832, 857 (1st Dist. 2001). Here Plaintiffs' claim
against Helie does not directly arise from the three communications that Plaintiffs
cite as these communications fail to show any activity by Helie directed at the
forum.
Finally, the Court finds that it is not reasonable for Helie to defend this
action in Illinois. (see Section II. B. c., infra).
C. CONCLUSION
Therefore , Helie is not subject to personal jurisdiction m Illinois and his
motion to dismiss for lack of personal jurisdiction is GRANTED.
IV. ORDER
For the reasons stated, it is hereby ORDERED:
(1) Defendant Gramercy's and Helie's motions to dismiss, for lack of personal
jurisdiction is GRANTED;
(2) Plaintiffs' claims are dismissed with prejudice as to Defe ndant Gramercy
and Helie; }'
(3) This case is continued for a case management date of December 8, 2014, l).1
at g:oo a.m. without further notice. E N T ER E D
JUDGE JOHN C. GRIFFIN·1981
NOV 26 2014
. !Jv r' u' n 1 Or\UWN
; CLERK OF THE CIRCUIT COURT
OF COO K COUNTY, IL
DEPUTY CLERK
Page 9 of9
APPENDIX D
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, LAW DIVISION
Alan J. Kaufman, Sue E. Kaufman, )
Lfenet LLC, Bbrook, LLC, and Dralli, )
LLC, )
)
Plaintiffs, )
) No. 12 L 13292
v. )
) Commercial Calendar T
BDO Seidman L.L.P., et. al., )
) Judge John C. Griffin
)
Defendants. )
OPINION
This cause is before the Court on Defendants Gramercy Advisors, L.L.C.
("Gramercy Advisors"), Gramercy Asset Management, LLC ("GAM"), Tall Ships
Capital Management, LLC ('Tall Ships"), Steamboat Capital Management, LLC
("Steamboat"), (collectively "Gramercy" or "Gramercy Defendants"), and Robert
Koenigsberger's (for purposes of this motion collectively included with "Gramercy"
or "Gramercy Defendants" otherwise referred to individually as "Koenigsberger"),
and Defendant Marc Helie's ("Helie") motions to dismiss Plaintiffs Alan J.
Kaufman, Sue E. Kaufman, Lfenet LLC, Bbrook, LLC, and Dralli, LLC's
(collectively "Plaintiffs" or "the Kaufmans") second amended complaint pursuant to
section 2-301 of the Illinois Code of Civil Procedure.
I. BACKGROUND
The following is a brief summary of the facts contained in Plaintiffs' first
amended complaint. Plaintiffs allege that BDO Seidman, LLP ("BDO"), multiple
BDO employees, Gramercy, Helie and other participants (all collectively
"Defendants") defrauded Plaintiffs through the design, marketing, sale, and
implementation of tax-reducing investment strategies that Defendants allegedly
knew the Internal Revenue Service ("IRS") would disallow as illegal and classify as
an abusive tax shelter ("the "Distressed Debt Strategy"). Thereafter, Plaintiffs filed
their second amended complaint against Gramercy and other defendants, including
Page 1 of 10
Helie. Gramercy and Helie both bring motions to dismiss Plaintiffs' second amended
complaint for lack of personal jurisdiction.
II. GRAMERCY'S MOTION TO DISMISS
Gramercy contends that it is not subject to personal jurisdiction in Illinois
and that Plaintiffs' first amended complaint should be dismissed pursuant to
section 2·301. See 735 ILCS 5/2·301 ("fA] party may object to the court's jurisdiction
. . . on the ground that the party is not amenable to process of a court of this
State . ..").
Illinois Courts analyze a nonresident defendant's forum contacts within the
framework of two recognized forms of personal jurisdiction: general and specific
jurisdiction. See Bolger v. Na.utica. Int'l, Inc., 369 Ill. App. 3d 947, 951·52 (2nd Dist.
2007). Thus, t he Court must initially determine whether Gramercy is subject to
general jurisdiction.
A. GENERAL JURISDICTION
The United States Supreme Court held in Daimler AG v. Ba.uma.n, 134 S. Ct.
746, 761 (2014), that a corporate defendant ordinarily may be subject to general
jurisdiction only in its state of incorporation or the state of its principal place of
business. (finding that it is insufficient that the defendant "engages in a substantial
continuous, and systematic cour::;e of business" in a forum state); (Id. at 761 n. 19)
(finding that for general jurisdiction to apply the course of business must be "so
substantial and of such a nature as to render the corporation at home in the state.'').
In their response, Plaintiffs do not contend that Gramercy is subject to
general jurisdiction. MoTeca.mbe Ma.r., Inc. v. Na.t'l Ba.nk of Greece, S.A., 354 Ill.
App. 3d 707, 710 (1st Dist. 2004) (finding that it is well-established that the
plaintiff bears the burden of establishing a valid basis for asserting jurisdiction over
the defendant). Further, Gramercy is not incorporated in Illinois nor has its
principal place of business in Illinois. Therefore, Gramercy is not subject to general
jurisdiction.
B. SPECIFIC JURISDICTION
The Illinois long·arm statute authorizes Illinois courts to exercise specific
jurisdiction over nonresident defendants. 735 ILCS 5/2-209. Under the Illinois long·
arm statute, an individual is subject to specific jurisdiction, whether or not they are
a citizen or resident of Illinois, if the defendant performs any contract or promise
that is substantially connected with the State of Illinois. 735 ILCS 5/2·209(a)(7). In
Page 2 of 10
addition, the Illinois long-arm statute includes a "catch all" provision whereby a
court may exercise jurisdiction over a person on any basis permitted by the Illinois
Constitution and the United States Constitution. 735 ILCS 5/209(c).
Three criteria are considered in determining whether specific jurisdiction
exists under the catch-all provision: "whether (1) the nonresident defendant had
'minimum contacts' with [the forum] such that he had 'fair warning' that he may be
required to defend himself there; (2) the action arose out of or relates to the
defendants' contacts with [the forum]; and (3) it is reasonable to require the
defendants to litigate in [the forum state]." Mo1-gan, Lewis & Bockius LLP v. City of
E. Chi., 401 Ill. App. 3d 947, 954 (1st Dist. 2010); see also Int'l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945) ("Under federal due process standards, a
court may exercise personal jurisdiction over a nonresident defendant if the
defendant has had sufficient "minimum contacts" with the forum state such that
maintenance of the suit in the forum does not offend "traditional notions of fair play
and substantial justice."); Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985)
("fair warning. . . gives a degree of predictability . . [and] . . . allows potential
defendants to structure their primary conduct with some minimum assurance as to
where that conduct will and will not render them liable to suit.") (internal
quotations omitted).
a. Minimum Contacts
The first step of the specific jurisdiction analysis requires that the
nonresident defendant have minimum contacts and fair warning within the forum.
See Morgan, Lewis & Bockius LLP, 401 Ill. App. 3d at 954. The requirements of
minimum contacts and fair warning are satisfied if "the defendant has (1)
purposefully directed his activities at Illinois residents, (2) reached out beyond one
state to create continuing relationships with citizens of another state, or (3)
purposefully derived benefits from his interstate activities." Kalata v. Healy, 312 Ill.
App. 3d 761, 769 (1st Dist. 2000).
Gramercy maintains that it does not have the minimum contacts or fair
warning within Illinois. Gramercy includes the supporting affidavit of Robert
Lanava ("Lanava"), the chief compliance officer and head of operations of Gramercy.
The affidavit includes the following facts: that Plaintiffs (Michigan, Delaware,
Connecticut and/or New York) and Gramercy Defendants (Connecticut, Delaware
and/or New York) reside outside of Illinois; that Plaintiffs and Gramercy never met
in Illinois; that n o communications between the parties was sent to or from illinois;
that all transactions concerning Plaintiffs in which the Gramercy Defendants were
involved took place in Connecticut, New York, or outside the United States; and
Page 3 of 10
that none of Gramercy's officers, directors, employees or agents ever traveled to or
conducted business in Illinois.
In response, Plaintiffs argue that Gramercy purposefully directed its
activities at Illinois by engaging with BDO, an Illinois-headquartered company, to
develop and promote the Distressed Debt Strategy to the Kaufmans.
In reply, Gramercy argues that Plaintiffs' affidavits fail to offer any specific
or credible facts to rebut the supporting affidavit of Lanava.
1. Competing Affidavits
When a court is faced with competing affidavits submitted on a motion
challenging personal jurisdiction, "conflicts will be resolved in favor of the plaintiff
for the purpose of establishing whether a prima facie case for personal jurisdiction
has been shown." Keller v. Henderson, 359 Ill. App. 3d 605, 611 (2nd Dist. 2005).
However, in order to establish a genuine conflict, Plaintiffs must come forward with
credible evidence specifically countering the facts alleged in Gramercy's affidavit.
See Kutner v. DeMassa, 96 ll. App. 3d 243, 248 (1st Dist. 1981) (taking the
defendant's affidavit to be true where the plaintiffs counter·affidavit failed to rebut
statements that defendant did not have an agency relationship with other parties
and was not part of any alleged conspiracy).
Here the Court notes that Plaintiffs' affidavits do not specifically rebut the
facts contained in the Lanava's affidavit, nor do Plaintiffs' affidavits make
substantive statements regarding jurisdiction in Illinois (see Section III. A, supra).
Thus, for purposes of adjudicating this motion, the unrebutted statements in
the affidavit of Lanava must be taken as true. See Kutner, 96 11. App. 3d at 248.
Even assuming Plaintiffs raised a genuine conflict within the affidavits and all
conflicts are resolved in their favor, the Court finds that Plaintiffs fail to show that
Gramercy has the necessary minimum contacts and 'fair warning' in Illinois.
2. Illinois· Based Counsel
Plaintiffs contend that Gramercy utilized Illinois based·counsel, Richard
Lipton, ("Lipton"), an attorney in the Chicago office of McDermott Will & Emery
("MWE"), to help prepare the documents and opinions necessary to market and
implement the Distressed Debt Strategy. However, even if Gramercy hired an
Illinois lawyer, the Supreme Court held in Walden v. Fiore, 134 S. Ct. 1115, 1122
(2014), that a "minimum contacts analysis looks to the forum itself, not the
defendant's contacts with persons who reside there." Here Plaintiffs draw only a
possible connection with Lipton, an Illinois resident, but they fall short of
Page 4 of10
establishing a connection between Gramercy and the forum itself. Thus, the Court
finds that Plaintiffs' argument regarding Lipton does not establish that Gramercy
had minimum contacts with Illinois.
3. Illinois·Based Bank and Wire Transfer
Plaintiffs argue that Gramercy routed wire transfers regarding client
investments in the Distressed Debt Strategy through a bank in Illinois. However,
the record shows that Gramercy had an account with Citibank in New York and
that Citibank used First Chicago Bank as a correspondent bank to facilitate the
interstate t ransfer of funds. Thus, the Court finds that this connection is far too
distant to establish that Gramercy had minimum contacts with Illinois.
4. Invoices and Fees with BDO
Plaintiffs maintain that Gramercy sent invoices to BDO's offices in Illinois
and that this creates a connection between Gramercy and the forum. The Court
finds that BDO's decision to process invoices in Illinois is not attributable to
Gramercy under a minimum contacts analysis. Rather, the fees in question were
remitted to Gramercy by clients located throughout the country and merely routed
through Illinois by BDO for administrative purposes. Therefore, Gramercy did not
establish minimum contacts by sending invoices and fees to BDO
5. Communications with Illinois
Plaintiffs argue that Gramercy had numerous communications directed at
Illinois. However, the record shows that many of the cited communications do not
show Gramercy directing its activities "to the forum itself'. See Walden, 134 S. Ct.
at 1122. The Court also notes that when as here a "contract is neither negotiated
nor performed in the forum state, communications .. . into the forum state,
standing alone, are insufficient to establish specific jurisdiction over a nonresident
defendant." CF Indus. v. Ben -Trei, Ltd., 09 C 1353, 2009 WL 2765972 at *3 (N.D.
IlL Aug. 27, 2009). Therefore, Gramercy does not establish minimum contacts by
sending communicating with BDO
Finally, t he Court notes that Gramercy did not have 'fair warning' as both
Plaintiffs and Gramercy Defendants reside outside of Illinois and none of the
alleged transactions in which the Gramercy Defendants were involved, concerning
Plaintiffs, took place in Illinois.
Page 5 oflO
Therefore, the Court finds that Gramercy does not have the necessary
minimum ·c ontacts with Illinois arising from its relat ionship with Plaintiffs such
that it had fair warning that it may be required to defend itself in Illinois.
b. Arising Out of Forum
The second part of the specific jurisdiction analysis requires that an action
arise out of or relate to Gramercy's forum contacts. Viktron Ltd. Partnership v.
Program Data, Inc., 326 Ill. App. 3d 111, 121 (1st Dist. 2001). Gramercy argues
that Plaintiffs' claims do not directly or. indirectly arise out of Gramercy's forum
contacts with Illinois. Likewise, Gramercy contends that it never had an agency
relationship with BDO or any non·Gramercy Defendant.
In response, Plaintiffs contend that their cause of action arises from the
Distressed Debt Strategy that Gramercy allegedly developed and marketed through
its contacts with BDO and Lipton in Illinois.
The Court finds that Plaintiffs' claims do not directly arise out of Gramercy's
limited communications with residents ofillinois. First, whether or not BDO or non-
Gramercy defendants are subject to the Court's jurisdiction is irrelevant to the
Gramercy Defendants, as jurisdiction must be independently assessed for each
defendant. See Rush v. Savchuk, 444 U.S. 320, 332 (1980). Specific jurisdiction
must arise from a defendant's forum contacts, not the contacts of a third-party. See
Walden, 134 S. Ct. 1115 (2014) ("[T]he relationship must arise out of contacts that
the defendant himself creates with the forum state."). Here Plaintiffs do not
establish Gramercy's forum contacts. Instead, they only provide a limited
connection to Illinois through the non-Gramercy defendants.
Second, Illinois Courts have held that a plaintiffs cause of action must arise
directly from the defendant's forum contacts. See Spartan Motors, Inc. v. Lube
Power, Inc., Co., 321 Ill. App. 3d 832, 857 (1st Dist. 2001). Here the communications
that Plaintiffs cite do not involve substantive discussions of Plaintiffs' investments
and fail to show any Gramercy activity directed at the forum.
Therefore, the Court finds that Plaintiffs' claims against Gramercy do not
arise out of Illinois.
c. Reasonable to Require Litigation
The third part of the specific jurisdiction analysis requires that the Court
consider whether it is reasonable to require the nonresident defendants to litigate
in the forum state. See Morgan, Lewis & Bockirzs LLP, 401 Ill. App. 3d at 954; see
also Rollins v. Ellwood, 141 Ill. 2d 244, 275 (1990). Under the Illinois Constitution's
due process guarantee, "a court may exercise jurisdiction over a defendant only
Page 6 of 10
when it is fair, just and reasonable to require a nonresident defendant to defend an
action in Illinois considering the quality and nature of the defendant's acts which
occurred in Illinois or which affect interests located in Illinois." The Court considers
three relevant factorsl in determining the reasonableness of requiring the
defendant to litigate in Illinois: (1) the burden on the defendant of defending th e
action in the forum state, (2) the forum state's interest in adjudicating the dispute,
and (3) the plaintiffs interest in obtaining effective relief. Russell v. SNFA) 2013 IL
113909).
Plaintiffs argue that there is little burden on Gramercy in defending this
action in Illinois because it previously retained counsel and used a bank account in
Illinois. Plaintiffs further contend that the State of Illinois has an interest in
adjudicating the dispute given Gramercy's involvement in the Distressed Debt
Strategy. Finally, Plaintiffs maintain that obtaining effective relief is advanced by
keeping Gramercy in the instant lawsuit rather than having to institute multiple
proceedings in various jurisdictions.
The Court finds that it is not reasonable to require Gramercy to defend this
action as maintenance of the instant matter offends the traditional notions of fair
play and substantial justice. Plaintiffs have no interest in obtaining effective relief
in Illinois and Illinois has no interest in this dispute, as Gramercy Defendants and
Plaintiffs reside elsewhere.
Finally, like Gramercy, the Court notes that there is also no basis for it to
exercise gen eral or specific jurisdiction individually over Koenigsberger.
Koenigsberger, a resident of New York, does not maintain the type of
pervasive in-state contacts warranting the exercise of general jurisdiction over a
nonresident defendant. (See Section II. A, infra.). Additionally, Plaintiffs have failed
to allege that Koenigsberger has the necessary contacts with Illinois, in connection
with the transactions underlying Plaintiffs' claim, to warrant this Court to exercise
specific jurisdiction over a nonresident defendant.
C. CONCLUSION
Based on the foregoing, Gramercy and Koenigsberger are not subject to
personal jurisdiction in Illinois and their motion to dismiss for lack of personal
jurisdiction is GRANTED.
1
Neither party discusses the interests of the other affected forums in the efficient judicial
resolution of the dispute a nd the advancement of substantive social policies.
Page 7 oflO
III. HELIE'S MOTION TO DISMISS
Defendant Helie, a former employee of Gramercy, JOms in the
contemporaneously-filed motion by Gramercy Defendants to dismiss this action for
lack of personal jurisdiction and adopts all arguments therein which are applicable
to him.
A. GENERAL JURISDICTION
Plaintiffs do not attempt to allege that Helie is subject to general jurisdiction.
(see Section II. A, infra.). Further, Helie resides in New York and he does not have
the type of pervasive in-state contacts warranting this Court to exercise general
jurisdiction over a nonresident defendant. Therefore, Helie is n ot s ubject to general
jurisdiction.
B. SPECIFIC JURISDICTION
The Court considers whether the three criteria for specific jurisdiction are
met. See Morgan, Lewis & Bockius LLP, 401 Ill. App. 3d at 954. Plaintiffs plead in
their complaint that Helie "has done and is doing business in Illinois" and "that he
has committed torts in Illinois."
Helie contends that these allegations represent bare legal conclusions "which
do no more than parrot s tatutory provisions for long· arm jurisdiction." Helie further
argues that there are no facts pled in the complaint demonstrating any nexus
between Plaint iffs' causes of action, Helie, a nd Illinois.
The Court finds that Helie is not subject to specific jurisdiction in Illinois.
First, Plaintiffs do not present credible evidence specifically countering the facts
alleged in Helie's affidavit. See Kutner, 96 ll. App. 3d at 248.
Thus, for purposes of adjudicating this motion, t h e unrebutted statements in the
affidavit of Helie must be taken as true. See Kutner, 9611. App. 3d at 248.
These unrebutted statements show that Helie is a New York resident and is
not domiciled in Illinois; Plaintiffs are Michigan residents; Plaintiffs and Helie
never met in Illinois and never communicated to or from Illinois; none of the
transactions underlying t he parties' investments took place in Illinois; and the
relevant contracts were drafted, performed, and executed outside of Illinois.
Second, these unrebutted facts show that Helie does n ot have the necessary
minimum contacts with Illinois to be subject to specific jurisdiction. The Court is
also unconvinced by Plaint iffs' a1·guments that H elie's communications, and his
various connections with Gramercy, somehow create these minimum contacts with
Illinois or provide him with 'fair warning.'
Page 8 of 10
Third, Illinois Courts have held that a plaintiffs cause of action must arise
directly from the defendant's forum contacts. See Spartan Motors, Inc. v. Lube
Power, Inc., Co., 321 Ill. App. 3d 832, 857 (1st Dist. 2001). Here Plaintiffs' claim
against Helie does not directly arise from the three communications that Plaintiffs
cite as these communications fail to show any activity by Helie directed at the
forum.
Finally, the Court finds that it is not reasonable for Helie to defend this
action in Illinois. (see Section II. B. c., infra).
C. CONCLUSION
Therefore, Helie is not subject to personal jurisdiction in Illinois and his
motion to dismiss for lack of personal jurisdiction is GRANTED.
Page 9 oflO
IV. ORDER
For the reasons stated, it is hereby ORDERED:
(1) Defendant Gramercy and Koenigsberger's motion to dismiss, for lack of
personal jurisdiction is GRANTED;
(2) Defendant Helie's motion to dismiss, for lack of personal jurisdiction is
GRANTED;
(3) Plaintiffs' claims are dismissed with prejudice as to Defendant Gramercy,
Koenigsberger and Helie;
(4) This case is continued for a case management date of December 8, 2014,
at 9:00a.m. without further notice. ,-.-ENTER ,ED
.( /r
JUt1G~ JOHNC. GRIFFIN-1981
NOV 2 6 2014
C. Griffin, No. 1981
Page 10 oflO