Act and Rule 10b-5, this Court has jurisdiction over this case
under § 1331 because the underlying claims raise a federal
question.

“Federal question jurisdiction arises only when the
complaint standing alone ‘establishes that either federal law
creates the cause of action or the plaintiff’s right to relief
necessarily depends upon the resolution of a substantial question
of federal law’”. Minor, 94 F.3d at 1105 (quoting Franchise Tax

Bd. v. Constr. Laborers Vacation Fund, 463 U.S. 1, 27~28 (1983)).

AA Sage’s reliance on Moses and Minor are misplaced. As
Minor states:

The text of § 4 does appear to confer jurisdiction on
federal courts to issue motions to compel in cases
where the court would have jurisdiction over the
underlying claims; and the Supreme Court has used
language that could be interpreted as implying the
same: “Section 4 provides for an order compelling
arbitration only when the federal district court would
have jurisdiction over a suit on the underlying
dispute...” Moses H. Cone, 460 U.S. at 942. A strong
body of case law has developed, however, holding that
the nature of the underlying dispute is irrelevant for
purposes of subject matter jurisdiction, even on a
motion to compel under § 4, i.e. the motion itself must
invoke diversity or federal question jurisdiction.

Minor, 94 F.3d at 1106. In view of the foregoing, it becomes

apparent that AA Sage’s Complaint for declaratory and injunctive
relief to stay arbitration is created by a private contract
agreement under the rules of the NASD and the resolution of AA
Sage’s complaint involves the mere interpretation of the NASD
rules. Such contract disputes are governed by state law, not

federal law. Id. The fact that the PTI’s arbitration claims are



Cir. 1994). To withstand a motion to dismiss, a complaint must

allege facts which sufficiently set forth the essential elements

of the cause of action. Gray v. County of Dane, 854 F.2d 179,
182 (7th Cir. 1988). Dismissal is proper only if it appears
beyond a doubt that a plaintiff can prove no set of facts in
support of a claim which would entitle him to relief. Conley v.
Gibson, 355 U.S. 41, 45-46 (1957).
II. Subject Matter Jurisdiction

In its Complaint, AA Sage alleges that “this Court has
jurisdiction over this action pursuant to § 1331 because PTI’s
arbitration claims arise and NASD has violated its obligations
under the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et
seq.” (Compl. @ 9.) Additionally, AA Sage asserts in its
Memorandum in Opposition to Defendant’s Motion to Dismiss that
even if this Court does not have jurisdiction under § 1331,
jurisdiction is proper under § 1332 since given the dismissal of
the NASD, the parties are now diverse.

A. Federal Question Jurisdiction

First, AA Sage argues that the United States Supreme Court

in Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460

U.S. 1 (1983), and the Seventh Circuit in Minor v. Prudential
Securities, Inc., 94 F.3d 1103 (7th Cir. 1996), have interpreted
Section 4 of the FAA to allow a district court to look to the
underlying claims in the arbitration in order to determine the
existence of a federal question for purposes of jurisdiction
under § 1331. Furthermore, AA Sage argues because PTI’s

arbitration claims are based upon Section 10(b) of the Securities



federal claims is irrelevant. Therefore, this Court does not

nave federal question jurisdiction over AA Sage’s Complaint to
stay arbitration of PTI’s securities claims, even though PTI’s
arbitration claims arise under the Securities Act.

B. Diversity Jurisdiction

AA Sage claims, in its response to PTI’s Motion to Dismiss,
that since the NASD, the only non-diverse party, was dismissed,
this Court now has jurisdiction under § 1332. AA Sage alleged in
the Complaint that: (1) AA Sage is a Delaware corporation with
its principal place of business in California; (2) PTI is an
Illinois limited liability company with its principal place of
business in Chicago, Illinois; and (3) the amount in controversy
in the underlying arbitration is for damages in excess of
$640,000.

For purposes of determining the existence of jurisdiction
based on diversity where a limited liability company is a party,
the citizenship of the members of the limited liability company
determines its citizenship, rather than its place of formation or

its principal place of business. Cosgrove v. Bartolotta, 150

F.3d 729, 731 (7th Cir. 1998). Because AA Sage did not properly
plead the citizenship of PTI, subject matter jurisdiction cannot

be established by way of diversity of the parties.



+ Minute Order Form (06/97)

oN United States District Court, Northern District of Illinois
lame of Assigned Judge i Sitting Judge if Other
‘ or Magionate jude George M. Marovich Sinan Assiered Sede
CASE NUMBER 02 C 5256 DATE 8/18/2003
CASE ABN Amro Sage Corp. vs. PTI Capital Management
TITLE

of the motion being presented.]

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION:

DOCKET ENTRY:

(1) ia} Filed motion of [ use listing in “Motion” box above.]

(2) go Brief in support of motion due

Q) oO Answer brief to motiondue____. Reply to answer brief due

(4) Oo Ruling/Hearing on___setfor__——_at

(5) a) Status hearing[held/continued to] [set for/re-set for]on__——ssetfor_ at.
(6) a) Pretrial conference[held/continued to] (set for/re-setfor]on____—ssetfor__——sat_—
(7) oO Trial[set for/re-set for]on___at

(8) a [Bench/Jury trial] [Hearing] held/continued to_____at

(9) 0 This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OOFRCP4(m) OLocal Rule 41.1 CFRCP41(a\(1) 0 FRCP41(a)(2).

(0) «=i (Other docket entry) _ ENTER MEMORANDUM OPINION AND ORDER. The
defendant PTI’s motion to dismiss without prejudice.

(1) ff [For further detail see order attached to the original minute order.]

Court grants

No notices required, advised in open court.

No notices required. number of notices

Notices maited by judge’s staff.
Notified counsel by telephone. ! AUG 1 9 2003
v | Docketing to mail notices.

v Mail AO 450 form.

sn. Ann

altos S\
Copy to judge/magistrate judge yynds ra
courtroom at Wd Q\
ID deputy’s H wa
initials ae 403
Date/time recei By SOU
central Clerk's a ae a3 crllng deputy incils



CONCLUSION
For the reasons set forth above, the Court grants Defendant

PTI’s Motion to Dismiss without prejudice.

ENTER:

\

| AC ence

M. Marovich
states District Judge

Geg

DATED:



DOCKETED

UNITED STATES DISTRICT COURT Aue 19 2003
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ABN AMRO SAGE CORPORATION, )
)
Plaintiff, )
) 02 C 5256
v. ) Judge George M. Marovich
)
PTI CAPITAL MANAGEMENT, L.L.C., )
)
)

Defendant.

MEMORANDUM OPINION AND ORDER

Plaintiff ABN AMRO Sage Corporation (“AA Sage”) filed a
Complaint for Declaratory and Injunctive Relief pursuant to the
Declaratory Judgment Act, 28 U.S.C. § 2201, and Rule 65 of the
Federal Rules of Civil Procedure, against PTI Capital Management,
L.L.C. (“PTI”) and NASD Dispute Resolution, Inc. (“NASD”) to
enjoin an NASD arbitration pending against AA Sage. AA Sage has
since voluntarily dismissed NASD from this action. PTI has moved
to dismiss the Complaint under 12(b) (1) for lack of subject
matter jurisdiction. For the reasons set forth below, the Court
grants PTI’s Motion to Dismiss.

BACKGROUND

Unless otherwise noted, the following facts are not in
dispute. On or about September 10, 2001, PTI filed a Statement
of Claim for arbitration with the NASD Dispute Resolution, Inc.
against AA Sage. PTI alleges that AA Sage violated, inter alia,

the following federal laws: Section 10(b) of the Securities



Exchange Act of 1934, 15 U.S.C. § 78j(b) (“Securities Act”), and
SEC rule 10b-5, 17 C.F.R. 240.10b-5 (“Rule 10b~5").

AA Sage, by virtue of its NASD membership, has agreed to
comply with the rules of NASD, including those involving
arbitration. According to the NASD Rules, AA Sage has only
agreed to arbitrate claims brought by its “customers” or another
NASD member before the NASD. On June 24, 2002, AA Sage filed a
Complaint for Declaratory and Injunctive Relief under Declaratory
Judgment Act, 28 U.S.C. § 2201 and Fed. R. Civ. P. 65, against
PTI and NASD Dispute Resolution, Inc. NASD has since been
voluntarily dismissed from the case. AA Sage brought this
Complaint to stay the arbitration, alleging that PTI is not a
“customer” under the NASD rules. AA Sage further alleges that
since PTI is not a “customer” and since AA Sage never agreed to
arbitrate its claims, AA Sage should not be compelled to
arbitrate, per the Federal Arbitration Act (“FAA”). On September
18, 2002, PTI filed its Motion to Dismiss for lack of subject
matter jurisdiction. In its response, AA Sage alleges that this
Court, has jurisdiction 28 U.S.C. § 1331 (“§ 1331"), and now
additionally under 28 U.S.C. § 1332 ("§ 1332") by virtue of NASD
being voluntarily dismissed from the case.

DISCUSSION

I. Standard for a Motion to Dismiss

When considering a motion to dismiss, a court must view the
complaint’s allegations in the light most favorable to the
plaintiff, and all well-pleaded facts in the complaint must be

accepted as true. Wilson v. Formigoni, 42 F.3d 1060, 1062 (7th