NBA Star Wins Jurisdiction Battle in Lawsuit Against Advisors

Apr 11, 2008

A federal judge has denied a motion to dismiss for lack of personal jurisdiction finding that Chicago Bulls basketball player Ben Gordon, who sued his financial advisors for breach of contract, is entitled to have his case heard by a federal judge in Illinois.
The court found that the “contract at issue was substantially connected with Illinois, thus satisfying the requirements of 735 ILCS 5/2-209(a)(7) for an exercise of long-arm jurisdiction over these defendants.”
The litigation involves Gordon, who is a citizen of Illinois, and defendants Larry Harmon of Larry Harmon & Associates, P.A.; Vitalis Partners, LLC; and Kenny Cruz of KC Development Company, LLC. The defendants are all based in California.
The agreement in question contemplated that Harmon and LHA would provide financial services to Gordon throughout his NBA career, which the letter agreement characterized as “a long-term relationship.”
The court wrote the agreement “further provided that they intended to be involved in all of Gordon’s financial decisions. The letter set out a schedule of estimated fees for a four-year period: for the first year, the fee was $4000 per month plus out-of-pocket expenses; for the second, $5000 per month plus out-of-pocket expenses; and for the third and fourth, $6000 per month plus out-of-pocket expenses.”
Once Gordon began playing for the Bulls, his paychecks were wired directly to accounts controlled by Harmon and LHA, according to the court. The relationship continued for over two years. In May 2006, Harmon contacted Gordon to discuss changing the fee structure to one based on a percentage of Gordon’s income. According to the complaint, Gordon continually expressed reservations about such an arrangement and never agreed to the change. At some point not specified within the complaint, LHA began charging Gordon fees of 1.5 percent of his income for the services. Gordon alleged in the complaint that he never consented to the change.
In August 2006, Harmon contacted Gordon about an investment opportunity in real estate in California. The complaint alleges that Harmon advised Gordon to invest a total of $1 million, consisting of $750,000 of Gordon’s own funds and $250,000 in borrowed funds. However, rather than investing the money on Gordon’s behalf, in February 2007 Vitalis, LHA, KCD, Cruz, and Harmon borrowed that amount from Gordon to invest it for their own benefit. They executed a promissory note stating that Gordon had lent them $1 million and setting out terms by which that amount would be repaid. When Gordon discovered the existence of the note, he sought to enforce its terms, but was unsuccessful.
That’s when Gordon filed a two-count complaint in Illinois state court, asserting a claim against the defendants for breach of contract for failure to honor the terms of the promissory note an that Harmon and LHA breached fiduciary duties to Gordon over the course of their relationship “by actions such as changing the fee structure without Gordon’s consent and recharacterizing the $1 million transaction into a deal of a nature other than that to which Gordon agreed.”
The defendants removed the case to federal court, relying upon diversity jurisdiction and “now move to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(2), arguing that this court has no personal jurisdiction over them.”
In analyzing the motion, the court relied on the Illinois long-arm statute, 735 ILCS 5/2-209, which “sets out the acts that will submit a person to jurisdiction within this state regardless of their place of citizenship or residence. Of importance to this case are subsection (a)(1), which states that jurisdiction can be based on the transaction of any business within Illinois, and (a)(7), which provides that jurisdiction can result from the making or performance of any contract or promise substantially connected with Illinois.”
The court went on to consider the breach of contract and breach of fiduciary duty counts separately.
Regarding the former, the court wrote that the allegations within the complaint “assert that Gordon resided in and was a citizen of Illinois when Harmon approached him about the real estate investment. The note clearly specifies that Gordon and his companies were the source of the money; defendants would be hard-pressed to deny that they knew that he and his funds were in the state of Illinois. The funds at issue at least in part belonged to Gordon personally. By its terms, the note contemplated an extended course of performance, with a minimum of two years of interest payments to Gordon and his companies in addition to the repayment of the principal amount. The combination of all of these aspects convinces us that the contract at issue was substantially connected with Illinois, thus satisfying the requirements of 735 ILCS 5/2-209(a)(7) for an exercise of long-arm jurisdiction over these defendants.
“Furthermore, the specific (and unusual) circumstances of this case convince us that an exercise of personal jurisdiction in this instance is consistent with ‘traditional notions of fair play and substantial justice.’ According to the allegations of the complaint, Defendants orchestrated this transaction without Gordon’s participation or prospective agreement to litigating disputes in another forum. They ‘borrowed’ $1 million from a known Illinois resident while concealing the true nature of the transaction from him. It is unreasonable for them to expect not to be sued in the home state of the person who is the source of the funds. Consequently, we conclude that an exercise of specific personal jurisdiction over all five defendants is proper with respect to Count One.”
Turning to count two, the court wrote that Harmon and LHA “entered a continuing relationship with Gordon that lasted for more than two years and was contemplated to last for at least four. They were involved in every aspect of Gordon’s financial dealings. Though the complaint gives no specifics about the extent of Gordon’s holdings, given his status as a professional athlete in a sport known to yield large earnings for players both directly and through endorsements, it is extremely unlikely that Harmon and LHA interacted with Gordon sporadically during those years; multiple contacts via phone, email, regular mail, and physical visits would instead be expected. Harmon and LHA performed individualized services for a substantial amount of money for a known Illinois client. Though the phrase ‘transacting business’ does not lend itself to exact definition, the nature of the activities at issue in this case convince us that the activities of Harmon and LHA here safely fall within its boundaries.”
The court concluded that “a reasonable person in the shoes of Harmon and LHA would recognize the likelihood of being called to a court in the client’s home state to answer legal allegations. Purposeful direction of activity and availment of benefits of associating with an Illinois resident are readily apparent in this case; due process concerns of an exercise of personal jurisdiction are simply not implicated.”
Ben Gordon, G7, Inc. et al v. Vitalis Partners, LLC; N.D. Ill.; 07 C 6807; 2008 U.S. Dist. LEXIS 12044; 2/20/08
Attorneys of Record: (for plaintiffs) Jefferey Ogden Katz, LEAD ATTORNEY, James W. Davidson, Lisa M. Sommer, Spellmire & Sommer, Chicago, IL; James William Davidson, Clausen Miller P.C., Chicago, IL. (for defendants) James Kenneth Borcia, LEAD ATTORNEY, David O Yuen, Tressler, Soderstrom, Maloney & Priess, Chicago, IL.


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