1993 WL 291697 (N.D.Ill.)

Jeffery CAGAN and Cagan Reality, Inc., as Court-appointed Receiver for

Financial Concepts Related Entities, et al., Plaintiffs,

v.

SOUTHMARK CORPORATION, et al., Defendants.

No. 91 C 3720.

United States District Court, N.D. Illinois, E.D.

Aug. 3, 1993.

MEMORANDUM OPINION

GRADY, District Judge.

*1 Before the court is plaintiffs' motion for class certification and defendants' joint motion to dismiss the complaint, or in the alternative, for change of venue. As explained below, the motion for class certification is denied, the motion to dismiss is granted in part and denied in part, and the motion for change of venue is denied without prejudice.

FACTS

In the mid-1970's, Earl Dean Gordon and Kenneth F. Boula founded a real estate investment syndicate called Financial Concepts ("Financial"), which consisted of approximately 300 limited and general partnerships. These partnerships, organized around properties Boula and Gordon had purchased, were comprised of more than 2,300 individual investors who had contributed a total of $55 million. Because very few of the Financial partnerships generated substantial income, Gordon and Boula used new investors' funds to pay-off older investors as part of an elaborate "Ponzi" or pyramid scheme, while at the same time pocketing millions of dollars in investment funds for themselves. Gordon and Boula pled guilty to mail fraud charges pursuant to a criminal information filed by the United States Attorney. See United States v. Boula, 932 F.2d 651, 653 (7th Cir.1991).

In the late 1980's, Financial investors filed a class action lawsuit, Gaskill v. Gordon, No. 88 C 3404 (N.D.Ill.), in which plaintiffs Jeffery Cagan and Cagan Realty, Inc. (collectively referred to as "Cagan") were appointed receivers and charged with managing the remaining assets of Financial for the benefit of its investors. All entities, in whatever form, owned or controlled by Gordon and Boula were eventually placed under the receivership, and all assets owned by those entities became receivership property. During the course of performing his receivership duties, Cagan discovered the transactions which form the basis of this suit: namely, transactions involving the sale of real property in Arkansas called Diamondhead and the outstanding shares in Riviera Utilities of Arkansas, Inc. ("Riviera Utilities"), the water company servicing Diamondhead.

The following factual allegations are set out in the pleadings: Gordon and Boula had a long-standing relationship with defendant Southmark Corporation ("Southmark") dating back to the mid-1980's. In 1985 and 1986, Financial sold over $2.1 million in real estate partnership interests on behalf of Southmark. During this period, a Southmark representative would regularly participate in seminars for potential investors at Financial's office in Barrington, Illinois, and would on occasion hold formal training meetings for Financial's sales staff. In December 1985, Southmark and Financial sponsored a Christmas party for 500 to 600 potential investors.

When, by late 1985, it had become obvious that the Financial partnerships were not generating enough revenue to make the promised payments to its investors, Gordon and Boula turned to Southmark for help. Southmark's vice-president met with Gordon and Boula in Barrington to discuss Financial's economic troubles. Gordon asked if Southmark would be interested in purchasing some or all of the Financial partnerships. Gordon informed the vice-president that Financial was soliciting funds from new investors in order to pay off older investors, that these funds were also being used to make improvements to existing properties instead of purchasing new properties, and that both uses were contrary to the representations made to investors. Reviewing the business records, prospectuses, and tax returns of Financial and its related entities, the vice- president suggested that Financial combine all of its business entities into one master partnership, but he did not acknowledge or discuss the fact that Gordon and Boula were running an illegal pyramid operation.

*2 In mid-1986, Gordon notified the president of Southmark's public syndication division that, by order of the Illinois Attorney General, Financial could no longer sell securities in Illinois. At the same time, Southmark was experiencing a financial crunch of its own. It was losing money on Diamondhead, a troubled Arkansas resort property which Southmark's subsidiary, defendant Resort Land Corporation ("Resort"), had purchased in a bankruptcy sale in 1985 for approximately $1.7 million. In early 1987, Southmark contacted Gordon and Boula and asked if they were interested in selling lots in Diamondhead. Eventually, Southmark asked them to purchase the entire Diamondhead project and all of the outstanding shares of Riviera Utilities.

Following the suggestion of Southmark's vice-president, Gordon and Boula formed Equity Builders Inc. ("EBI") to purchase Diamondhead. Gordon was the president of EBI, and he and Boula were its sole shareholders. EBI had no assets or business operations. In June 1987, EBI purchased Diamondhead and the Riviera securities from Resort for $3,539,703.00, with a down payment of $349,667.00 and two promissory notes. As security for the sale, Gordon, in his capacity as EBI's president, executed and delivered to Resort a mortgage on the real property and the Riviera shares. On the same day, Resort assigned its interests in the property and shares to its parent, Southmark. [FN1]

Plaintiffs allege that between June 1987 and March 1988, Gordon and Boula organized the partnerships Diversified Shared Equity Income Associates 88-I, Diamondhead Condominium Partners 88-I, II and III, Diamondhead Eagles Roost Partners 88-I and II, and Diversified Income Associates 88-I (collectively the "Diamondhead partnerships"), in order to solicit funds from potential investors to fund the Diamondhead deal. Relying on representations made by Gordon and Boula, plaintiff investors and approximately ninety would-be class members purchased interests in the Diamondhead partnerships, with the understanding that their funds would be used to make improvements to Diamondhead. Plaintiffs allege that Gordon and Boula illegally diverted at least $1.5 million of the Diamondhead partnership funds: $1.3 million went to EBI to reduce liabilities incurred in connection with the acquisition of Diamondhead, and $200,000.00 went to Gordon and Boula as commissions.

Plaintiff Cagan, as the federally appointed receiver for EBI and the Diamondhead partnerships, took possession of all property of EBI, including Diamondhead and the Riviera stock, on March 17, 1989. At roughly the same time, Southmark underwent Chapter 11 reorganization, see In re Southmark Corp., No. 389-36324-SAF-11 (Bankr.N.D.Tex.1990), and it filed a suit in this district against Cagan, as EBI's receiver, to foreclose on the Diamondhead mortgage and the Riviera stock and to obtain judgment on the two promissory notes. See Southmark Corp. v. Cagan, No. 89 C 4647 (N.D.Ill.) (assigned to Judge Nordberg).

*3 In the foreclosure litigation, Judge Nordberg, deciding that Cagan lacked standing to raise affirmative defenses and counterclaims to the mortgage foreclosure on behalf of the Diamondhead partners and EBI, granted summary judgment in favor of Southmark. Judge Nordberg's analysis began by stating the general rule that receivers may only bring actions which could have been brought by the person whose property is in receivership--in this case, by EBI. The court noted that receivers also have standing to protect such property on behalf of creditors who have claims against it. The court then reasoned as follows: the Diamondhead partners had claims against Gordon and Boula but not against EBI; therefore, those partners were not creditors of EBI, and Cagan could not resist Southmark's foreclosure action by raising the partners' claims of fraudulent transfer. The court found that Cagan could not assert affirmative defenses and counterclaims on EBI's behalf because EBI was enriched by the alleged scheme between Southmark, Gordon, and Boula. Before granting summary judgment, the court denied Dolores Fuhrman, as the representative of the Diamondhead partners, leave to intervene to raise defenses and counterclaims to the mortgage foreclosure.

The Seventh Circuit affirmed the district court's decision to deny intervention, see Southmark Corp. v. Cagan, 950 F.2d 416, 419 (7th Cir.1991), but reversed the court's grant of summary judgment, see Southmark Corp. v. Cagan and Cagan Realty, Inc., No. 92-2542, 1993 U.S.App. LEXIS 17120 (7th Cir. July 8, 1993). The Seventh Circuit held that Cagan, as receiver for both EBI and the Diamondhead partnerships, has standing to assert the partners' claims of fraud in the foreclosure action. [FN2] In addition, the Seventh Circuit found a disputed issue of fact as to whether EBI benefited from the alleged scheme to defraud the Diamondhead partners. The court then ordered that Judge Nordberg's case be reassigned to this court and consolidated with the instant action.

In this action, Cagan and the plaintiff investors, who purport to represent the roughly 90 other investors in the Diamondhead partnerships, raise the same claims as were presented in the form of affirmative defenses and counterclaims in the foreclosure litigation before Judge Nordberg. Specifically, plaintiffs assert claims of fraudulent conveyance under the Arkansas Fraudulent Transfer Act, A.C.A. Vol. 2, Subch. 2, §§ 4-59-204(a)(1) & (a)(2), breach of fiduciary duty, and (except for Cagan) common law fraud. Plaintiffs seek money damages and the imposition of a constructive trust or an equitable lien. Currently pending before the court are plaintiff investors' motion for class certification and defendants' joint motion to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(1), (b)(2), and (b)(3). Subsequent to these motions, plaintiffs filed an amended complaint naming additional class representatives and making additional allegations regarding class certification and the jurisdictional amount requirement. We apply the pending motions to the amended complaint.

DISCUSSION

I. Motion for Class Certification

*4 The investor plaintiffs have moved the court to certify the following class under Federal Rules of Civil Procedure 23(b)(1)(B) or (b)(3):

All partners of the following partnerships ("Creditor Partnerships") between June, 1987 and March, 1988: Diversified Income Associates 88-I; Diversified Shared Equity Associates 88-I; Diamondhead Eagles Roost 88-I; Diamondhead Eagles Roost 88-II; Diamondhead Condo 88-I; Diamondhead Condo 88-II; and Diamondhead Condo 88-III.

Plaintiff Fuhrman's Memorandum in Support of Motion for Class Certification, at 1. The court has broad discretion in determining whether a class should be certified. See Liberles v. County of Cook, 709 F.2d 1122, 1126 (7th Cir.1983). Although the court takes plaintiffs' class certification allegations as true for purposes of this motion, see Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78 (1974), plaintiffs bear the burden of proving that Rule 23's requirements have been satisfied, see Trotter v. Klincar, 748 F.2d 1177, 1184 (7th Cir.1984); Valentino v. Howlett, 528 F.2d 975, 978 (7th Cir.1976).

In order to carry their burden of proof, the investor plaintiffs must establish both that this suit satisfies the four requirements of Rule 23(a) (i.e. numerosity, commonality, typicality, and adequacy) [FN3] and that the action falls under one of the three subsections of Rule 23(b). [FN4] See Washington Nat'l Ins. v. Jefferies & Co., No. 89 C 2216, 1990 WL 251916, *1 (N.D.Ill. Dec. 20, 1990); Valentino, 528 F.2d at 978. Defendants, in addition to arguing that the requirements of Rule 23 are not satisfied, object to class certification on the ground that the purported class representatives and members lack standing.

A. Standing

A class action cannot be certified unless the named plaintiffs have standing. See Magnuson v. Hickory Hills, 730 F.Supp. 1439, 1442 (N.D.Ill.1990), aff'd, 933 F.2d 562 (7th Cir.1991). Article III of the Constitution "limits the power of the federal judiciary to the resolution of 'cases' and 'controversies.' " Foster v. Center Township of LaPorte County, 798 F.2d 237, 240-41 (7th Cir.1986). Under Article III, a plaintiff has standing if he alleges personal injury fairly traceable to the defendant's allegedly unlawful conduct, and if the injury would be redressable by the requested relief. See Allen v. Wright, 468 U.S. 737, 751 (1984). Standing doctrine also embraces several prudential, self-imposed limits on the exercise of federal jurisdiction. For example, plaintiff "generally must assert his own legal rights and interests," and he "cannot rest his claim to relief on the legal rights or interests of third parties." Warth v. Seldin, 422 U.S. 490, 499 (1975).

Defendants argue that the purported class representatives and members do not have standing because their claims are traceable only to the conduct of Gordon and Boula, and not to Southmark. Defendants contend that Resort sold Diamondhead and the shares in Riviera to EBI and assigned its interests in these properties to Southmark before Gordon and Boula created the Diamondhead partnerships, and before Gordon and Boula fraudulently solicited funds from their investors. Defendants further argue that neither Southmark nor any of its representatives or subsidiaries made any misrepresentations to the purported class members which caused them to purchase interests in the Diamondhead partnerships.

*5 The allegations of the amended complaint undermine Southmark's contentions. According to plaintiffs, Southmark had knowledge of the following well in advance of the Diamondhead sale: (1) Gordon and Boula were conducting an illegal pyramiding scheme; (2) the purchase price for Diamondhead was more than twice its fair market value; (3) EBI would become insolvent as a result of the sale; and (4) EBI was a shell corporation with no assets or access to funds except those Gordon could obtain fraudulently. Plaintiffs also allege that Southmark "substantially assisted" in Gordon and Boula's fraud by concocting a scheme with them to obtain money from the Diamondhead partners and by accepting payments that it knew or should have known had been illegally diverted from the Diamondhead partnerships.

These allegations sufficiently establish the standing of the investor plaintiffs and would-be class members. Because plaintiffs' action is a simple one based on common law fraud, fraudulent transfer, and aiding and abetting the breach of a fiduciary duty, the investors' injuries are not too abstract to be judicially cognizable. Southmark's conduct is also sufficiently traceable to the investors' injuries. The monetary losses were the direct and foreseeable result of an illegal scheme concocted by Gordon and Boula in collaboration with Southmark executives. Finally, given that the investors lost a discrete sum of money due to the conduct of Boula, Gordon, and Southmark, the investors' injuries would be redressed by the judgment they seek. [FN5]

B. Class Certification Under Federal Rule of Civil Procedure 23

Aside from potential subject matter jurisdiction problems arising from the would-be class members' failure to meet the jurisdictional amount requirement of 28 U.S.C. § 1332(a) [FN6], we decline to certify the class because the action does not fall under any of the subsections of Rule 23(b). See Washington Nat'l Ins., 1990 WL 251916, at *1 (court must find satisfaction of Rule 23(b) requirements in order to certify a class). Plaintiffs argue that we should certify a class of Diamondhead partners under Rule 23(b)(1)(B) or Rule 23(b)(3). The attorneys who represent the named investor plaintiffs, and who seek to certify a class, also represent Cagan. As the receiver for the Diamondhead partnerships, Cagan is suing to recover the money wrongfully diverted from all of those partnerships, and is alleging the same factual and legal bases (except common law fraud) for his claims as the proposed class members. Because, as already noted by the Seventh Circuit, Cagan is suing on behalf of the investors and is capable of protecting their interests, see Southmark, No. 92-2542, Mem. Op. at 7 (7th Cir. July 8, 1993), class certification would be an unnecessary expenditure of judicial resources. Therefore, class certification would not be "superior to other available methods for the fair and efficient adjudication of the controversy." See Fed.R.Civ.P. 23(b)(3).

*6 Nor will our decision not to certify a class "substantially impair or impede" the investors' ability to protect their interests. See Fed.R.Civ.P. 23(b)(1)(B). There is no reason to fear that those investors whose claims fall under this court's subject matter jurisdiction and who are currently or may in the future be parties to this action will somehow impede or impair the rights of the non-party investors. This is so because Cagan, as receiver for the Diamondhead partnerships, adequately represents the interests of the non-party investors. [FN7] And, the named investor plaintiffs "seek a unified recovery to the [Diamondhead] Partnerships," in the form of money damages, an equitable lien, or a constructive trust. They do not seek individual judgments which may decrease the amount of money available to the other partners. [FN8]

II. Motion to Dismiss

Defendants raise five grounds in support of their motion to dismiss: (1) lack of personal jurisdiction; (2) lack of venue; (3) lack of subject matter jurisdiction over the class action claims; (4) a prior order, allegedly barring this action, by the United States Bankruptcy Court for the Northern District of Texas; and (5) the existence of other causes of action pending between the same parties raising identical issues of law and fact. We easily dispose of grounds (3), (4), and (5). As noted above, we need not address subject matter jurisdiction over the claims of the would-be class members because they are not party-plaintiffs in this action, and because we decline to certify the class under Rule 23. See supra note 6. As to the prior order of the bankruptcy court, the Seventh Circuit noted in its recent opinion in the foreclosure case that "Southmark's failure to give Cagan adequate notice in [the bankruptcy action] allows Cagan to press his claims [in this court] even though those claims were not included in Southmark's court approved reorganization plan." See Southmark, No. 92-2542, Mem. Op. at 7 (7th Cir. July 8, 1993). Finally, no analogous action is pending before Judge Williams in the Gaskill litigation, and the Seventh Circuit ordered Judge Nordberg's case assigned to this court and consolidated with the instant action. The remainder of the opinion addresses personal jurisdiction and venue.

A. Personal Jurisdiction

A federal district court in Illinois has personal jurisdiction over a non- resident party if an Illinois state court would have jurisdiction. See Turnock v. Cope, 816 F.2d 332, 334 (7th Cir.1987); ISC-Bunker Ramo Corp. v. Altech, Inc., 765 F.Supp. 1310, 1329 (N.D.Ill.1990). In a motion to dismiss for lack of personal jurisdiction, the plaintiff carries the burden of proof. See Torco Oil Co. v. Innovative Thermal Corp., 730 F.Supp. 126, 128 (N.D.Ill.1989). A prima facie showing that jurisdiction over the defendant is proper will satisfy this burden. See O'Hare Int'l Bank v. Hampton, 437 F.2d 1173, 1176 (7th Cir.1971). In deciding the motion, the court may receive and consider affidavits from both parties, see id., and the court resolves all factual conflicts in favor of the plaintiff, see Deluxe Ice Cream Co. v. R.C.H. Tool Corp., 726 F.2d 1209, 1215 (7th Cir.1984).

*7 Plaintiffs contend that the court has personal jurisdiction over defendants because they committed tortious acts within Illinois. See 735 ILCS 5/2-209(2). [FN9] Defendants are correct that "economic loss which is felt in Illinois is not sufficient to confer jurisdiction [under the tortious act branch of the long-arm statute] when the acts occurred outside of Illinois." R.W. Sawant & Co. v. Allied Programs Corp., 489 N.E.2d 1360, 1364 (Ill.1986); see also Turnock, 816 F.2d at 335 ("An Illinois court does not acquire jurisdiction under the 'last act' doctrine simply because an economic loss is felt in Illinois when all the conduct contributing to the injury occurred outside of Illinois."). The tortious act branch does confer jurisdiction, however, where defendant made telephone calls, mailings, or other communications to plaintiff in Illinois, and the communications contained material misrepresentations which caused injury in Illinois. See Heritage House Restaurants, Inc. v. Continental Funding Group, Inc., 906 F.2d 276 (7th Cir.1990); FMC Corp. v. Varonos, 892 F.2d 1308 (7th Cir.1990); Club Assistance Program, Inc. v. Zuckerman, 594 F.Supp. 341 (N.D.Ill.1984).

The amended complaint alleges the following jurisdictional facts: (1) Southmark knew of Boula and Gordon's fraudulent operations; (2) Southmark served as a business counselor to Gordon and Boula; (3) Southmark assisted in developing a scheme to sell the Diamondhead property for use in the Ponzi scheme; (4) Gordon and Boula fraudulently solicited money from investors, many of whom reside in Illinois, for the Diamondhead partnerships; and (5) Southmark received some of the funds fraudulently solicited from the investors. Although not explicitly alleged in the amended complaint, plaintiffs in their memorandum claim that Gordon made misrepresentations to some plaintiffs in Illinois on behalf of Southmark. See Plaintiffs' Response to Motion to Dismiss the Complaint, at 7-8. This last allegation is crucial in establishing personal jurisdiction under the tortious act branch of the long- arm statute. As in Heritage House, FMC Corp., and Club Assistance Program, plaintiffs contend that Southmark participated in a scheme to defraud which included misrepresentations in Illinois. Although Southmark may not have communicated directly with the investors, plaintiffs contend that Gordon made the communications in Illinois on Southmark's behalf. See Morton v. Environmental Land Systems, Ltd., 370 N.E.2d 1106, 1109-110 (Ill.App. 1st Dist.1977) (court exerted personal jurisdiction over foreign defendants, who had combined with an Illinois investment counselor to sell partnership shares in a Florida real estate development, where the investment counselor made communications to plaintiffs in Illinois on behalf of the foreign defendants). And, Southmark could have foreseen that the misrepresentations would affect Illinois interests. See Proetz v. Dean Witter Reynolds, Inc., No. 87 C 4777, 1988 WL 17885, at *3, 1988 U.S.Dist. LEXIS 1418, at *7-8 (N.D.Ill. Feb. 19, 1988) (defendants subject to jurisdiction under tortious act branch because they could have foreseen that certain commodities futures transactions would be executed in Chicago); Gray v. American Radiator, 176 N.E.2d 761 (Ill.1961) (manufacturer subject to jurisdiction under tortious act branch where it could foresee that its product, which caused Illinois plaintiff's injury, would be placed in Illinois' stream of commerce).

*8 Plaintiffs' various assertions, if true, would establish personal jurisdiction under the tortious act branch of the long-arm statute. However, plaintiffs fail to make all of these allegations explicit in the amended complaint. On the assumption that plaintiffs will be able to amend their complaint to include the jurisdictional allegations made in their memorandum, we can properly exert personal jurisdiction under the long-arm statute. [FN10]

Due process requirements are satisfied as well. Under the Constitution, the court has jurisdiction over defendants if they have certain "minimum contacts" with Illinois so that jurisdiction does not "offend traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citation omitted). Southmark's complicity in the scheme to defraud the plaintiff investors indicates clear Illinois contacts, such that it could reasonably have anticipated being haled into court in Illinois in this matter. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).

We do not find sufficient Illinois contacts, however, to confer personal jurisdiction over defendants National American Corporation ("NACO") and Resort. It appears that Resort is a wholly-owned subsidiary of NACO, which in turn is a wholly-owned subsidiary of Southmark. Plaintiffs make no allegations against either NACO or Resort which indicate complicity in the alleged scheme to defraud. Nor do plaintiffs allege sufficient facts establishing that these defendants were "doing business" in Illinois under § 2-209(b)(4) of the long- arm statute. Plaintiffs allege only that NACO and Resort participated in the Diamondhead sale, which was undisputedly consummated outside of Illinois. Accordingly, the court dismisses NACO and Resort from this action for lack of personal jurisdiction.

B. Venue

Under 28 U.S.C. § 1391(a)(1) and (b)(1), venue is proper in "a judicial district where any defendant resides." A corporation, such as Southmark, "shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced." 28 U.S.C. § 1391(c). Because the court has determined that Southmark, the only remaining defendant, is subject to the court's personal jurisdiction, venue in this district is proper.

Defendants argue in the alternative that, if venue is proper, the action should be transferred to another district under 28 U.S.C. § 1404(a). The court finds it unnecessary to reach the merits of the motion to transfer, given the parties are still in the early stages of litigation. If discovery reveals that litigation in another properly venued district would be more convenient for the parties and witnesses and would foster the interests of justice, Southmark may renew its motion to transfer at that time. See FUL Inc. v. Unified School Dist. No. 230, 92 C 7674, 1993 WL 105433, 1993 U.S.Dist. LEXIS 4327 (N.D.Ill. April 5, 1993).

CONCLUSION

*9 Plaintiffs' motion for class certification is denied. Defendants' joint motion to dismiss is granted in part and denied in part. Defendants NACO and Resort are dismissed for lack of personal jurisdiction. On the assumption that plaintiffs will amend their complaint to include allegations that tortious acts were committed in Illinois on Southmark's behalf, we deny Southmark's motion to dismiss. Plaintiffs are given leave to file such an amendment to the complaint by August 23, 1993. The motion to transfer under 28 U.S.C. § 1404(a) is denied without prejudice.

FN1. Plaintiffs also allege that defendant National American Corporation ("NACO"), a subsidiary of Southmark and Resort's parent, was involved in the Diamondhead sale. Plaintiffs allege that the president of NACO approached Gordon and Boula with various offers concerning the property, and that NACO lawyers negotiated the final sale.

FN2. This holding disposes of several standing arguments defendants raise in their Response to Amended Complaint and Letter of December 23, 1992, at ¶¶ F3-F4.

FN3. Federal Rule of Civil Procedure 23(a) provides as follows:

One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

FN4. Federal Rule of Civil Procedure 23(b) provides in pertinent part:

(b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:

(1) the prosecution of separate actions by or against individual members of the class would create a risk of

(A) ....

(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or

(2) ....

(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy....

FN5. Defendants also contend that, because the would-be class representatives invested in only six of the seven Diamondhead partnerships, they do not have standing to represent the purported class members who invested in the seventh partnership. Even though all investors experienced a similar injury and have alleged an identical causal connection between their injuries and Southmark's conduct, defendants' argument has some merit. It is not necessary to decide this question because, as explained below, we deny the motion for class certification. It is sufficient that the named plaintiffs, on their own behalf, have standing to sue Southmark.

FN6. The court has subject matter jurisdiction over the claims asserted by Cagan and the named investor plaintiffs. Although Cagan does not raise a federal question nor assert diverse citizenship from the defendants, the court has "ancillary" jurisdiction over his claims by virtue of his appointment as a federal receiver in the Gaskill litigation. See Tcherepnin v. Franz, 485 F.2d 1251, 1255 (7th Cir.1973) ("The ancillary jurisdiction of federal courts over actions incident to a receivership established by a federal court has long been recognized."); Cagan v. Tyson, No. 92 C 1868, 1993 U.S.Dist. LEXIS 1707 (N.D.Ill. Feb. 9, 1993). In addition, each named investor plaintiff is diverse from Southmark and asserts claims in excess of $50,000.

The more difficult question is whether the court would have subject matter jurisdiction over the claims of the would-be class members, most if not all of whom allege damages less than the jurisdictional amount. As explained above, we decide not to certify the class, so these investors are not parties to this action unless they later become joined under Federal Rule of Civil Procedure 20. Because the joinder issue is not before the court, we need not decide at this time whether we would exert supplemental jurisdiction over claims not exceeding $50,000.00.

FN7. According to the 1966 amendment notes to Rule 23(b)(1)(B), the "vice of an individual action would lie in the fact that the other members of the class, thus practically concluded, would have had no representation in the lawsuit." Here, the federal receivership obviates this concern.

FN8. We fail to understand how, as defendants contend, the class and receiver are seeking "mutually antagonistic remedies." Defendants' Response to Amended Complaint and Letter of December 23, 1992, at ¶G. According to defendants,

[i]f Cagan, as receiver for the creditor partnerships, purports to sue on behalf of the creditor partnerships, then the limited partners that would benefit from such a suit cannot also maintain an action on their own behalf for the same relief.

Id. Because both Cagan and the named investor plaintiffs seek a "unified recovery" to the Diamondhead partnerships, they are not seeking mutually antagonistic remedies. And, both Cagan and the investor plaintiffs are represented by the same attorneys, so there is no risk of redundancy or waste of resources.

FN9. Effective September 7, 1989, Illinois amended its long-arm statute so that its reach is coextensive with due process requirements. See 735 ILCS 5/2-209(c) ("A court may also exercise jurisdiction on any other basis now or hereafter permitted by the Illinois Constitution and the Constitution of the United States."); see also Publications Int'l Ltd. v. Simon & Schuster, Inc., 763 F.Supp. 309, 311 (N.D.Ill.1991). Because this suit was filed after the effective date of the amendment, we analyze personal jurisdiction under the amended long-arm statute. See Rose v. Franchetti, 979 F.2d 81, 85-86 (7th Cir.1992); FMC Corp. v. Varonos, 892 F.2d 1308, 1311 n. 5 (7th Cir.1990).