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November 14, 2019

Lit Alerts—November 2019

A Publication of the Litigation Practice Group

Personal Jurisdiction: Illinois Appellate Court Holds Internet Auction Generates Specific Jurisdiction

In Dixon v. GAA Classic Cars, LLC, the Illinois Appellate Court, First District, held that a suit arising from an internet car auction hosted in North Carolina supported specific jurisdiction in Illinois when the purchaser of the car, who lived in Illinois, alleged the auctioneer was liable for negligent misrepresentation, fraudulent misrepresentation, deceptive practices, and fraudulent concealment related to the condition of the car he won at the auction.

The buyer alleged the car he purchased was not delivered in the condition specified in communications between the parties. After the trial court dismissed the suit based on lack of personal jurisdiction, the Illinois Appellate Court reversed. The Appellate Court cited the fact that the defendant had sent web advertisements and emails, and made phone calls to the plaintiff in Illinois, and that these communications had contained the defendant's allegedly fraudulent statements.

The defendant attempted to rely on a choice-of-forum provision from a term sheet it alleged was incorporated in the bidder registration form the plaintiff had signed prior to purchasing the car. However, the Appellate Court rejected the argument because the term sheet contained some terms that partially duplicated terms in the registration that the plaintiff signed, indicating that the documents were not intended to be used together, and because the defendant had not provided the term sheet to the plaintiff.

Privilege: S.D.N.Y. Grants SEC's Motion to Compel Upon Finding Investment Adviser's Communications With Attorneys From Compliance Consulting Firm Were Not Privileged

The US District Court for the Southern District of New York ruled in SEC v. Alderson that communications between an investment adviser and staff attorneys for the adviser's compliance consulting firm were not privileged. The court also found that the investment adviser waived any privilege by sending an otherwise privileged tax opinion to its accountants. Here, the Securities and Exchange Commission alleged, among other things, that two former employees of investment adviser Brite Advisors USA, Inc. (formerly deVere USA, Inc.) (DVU), Benjamin Alderson and Bradley Hamilton, had misrepresented an investment option's tax implications. Alderson and Hamilton's defense was that they relied in good faith on the advice of counsel DVU hired from MarketCounsel, LLC.

Two years before the SEC began its examination of DVU, DVU retained MarketCounsel to assist it with compliance with federal securities laws. Throughout the course of the SEC's examination, DVU's in-house counsel sought and received advice from attorneys at MarketCounsel even though the agreement between DVU and MarketCounsel expressly disclaimed an attorney-client relationship. DVU asserted work product and attorney-client privilege over communications with MarketCounsel, as well as over a tax opinion provided by DVU's separate counsel, Carlton Fields.

The SEC sought to compel DVU to turn over these documents. The court ruled in favor of the SEC, holding DVU could not withhold emails to attorneys at its compliance consulting firm, MarketCounsel, because there was not an attorney-client relationship. As Judge Valerie Caproni highlighted, the agreement between DVU and MarketCounsel "expressly disclaimed the existence of an attorney-client relationship," a determinative factor in the court's decision.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This newsletter is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.