Getting Jurisdiction Over A Foreign Corporation – IL Case Note

Q: Can Spanish companies be subject to Illinois jurisdiction where the companies’ U.S.-based subsidiaries signed contracts that contained an Illinois forum selection clause. 

A: Yes

 In , LLC v. Acciona, 2014 IL App (1st) 123403, the plaintiff entered into a multi-million dollar contract with two U.S. subsidiaries of the Spanish corporate defendants to develop power plants.

The US entities were owned by one or more companies owned by the defendants.

The operative contract documents contained forum selection clauses fixing Illinois as the site for litigation.  When the deal fell through, plaintiff sued the foreign parent companies for damages.

The defendants moved to dismiss on the basis that they lacked sufficient contacts with Illinois and didn’t sign the contract.  The trial court denied the motion and the defendants appealed.

Held: Affirmed.  The foreign defendants are “closely related” enough to the underlying contracts and parties to be subject to Illinois jurisdiction. 

Reasons:  

  • To sue a nonresident defendant in IL the plaintiff has the burden of showing a basis for personal jurisdiction;
  • Illinois courts can assert general or specific jurisdiction;
  • General jurisdiction over a nonresident requires a showing of continuous and systematic business contacts such that it can be sued for matters unrelated to its contacts with Illinois;
  • Specific jurisdiction requires a showing of minimum contacts –that a defendant purposefully directed its activities at Illinois and the litigation arises from those activities;
  • A corporation is subject to general jurisdiction where it is organized under Illinois law or is doing business in Illinois;
  • The Illinois long-arm statute (735 ILCS 5/2-209) permits jurisdiction over a foreign defendant on any basis permitted by the Illinois Constitution and U.S. Constitution;
  • If an out-of-state defendant’s contacts with Illinois are sufficient to satisfy state and federal due process concerns, the Illinois long-arm statute is satisfied;
  • Federal due process requires that a foreign defendant have certain minimum contacts with a forum such that maintenance of the suit doesn’t offend traditional notions of fair play and substantial justice.

 ¶¶ 34-37.

The trial court found jurisdiction on the basis that the foreign defendants were “closely related” to the dispute such that it was foreseeable they would be bound by the forum selection clause. 

In Illinois, forum selection clauses are construed broadly to include related claims ancillary to the contract.  The clauses are generally valid and enforceable and a non-party can be bound by them if it is closely connected to the dispute.  (¶¶ 36-37). 

Where there is a sufficiently close relationship between the non-party, the dispute and the contracting parties, the non-party is considered to impliedly consent to the forum selection clause and a foreign state’s exercise of personal jurisdiction over it.  (¶¶ 43-44).

Applying these principles, the Court found the defendants subject to specific jurisdiction in Illinois.  The Court pointed to the broad forum selection text and the fact that the defendants controlled all business aspects of their subsidiaries; including funding, hiring and firing decisions.

The Court also noted the U.S. subsidiaries had few employees, scant business operations and in one case, was purely a stockholding vehicle for the defendants’ multi-national business ventures.  (¶¶ 47-48).

Afterwords:

– Forum selection clauses are construed and enforced to the letter in Illinois- especially in contracts involving sophisticated commercial parties with equal bargaining power;

– a parent company that sufficiently controls or is intermixed with its subsidiary’s business affairs can be bound by a forum selection clause signed by the subsidiary.

 

 

 

 

 

 

  

 

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.