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.

 

 

 

 

 

 

  

 

Apparent Agency, Ratification and Long-Arm Jurisdiction: IL Law

The First District examines a slew of important substantive and procedural litigation issues in Graver v. Pinecrest Volunteer Fire Dept., 2014 IL App (1st) 123006, a commercial lease dispute pitting an Illinois corporation against a Tennessee corporation and an agent of that corporation.

The parties signed a fire truck lease that called for seven years’ worth of monthly payments.

The lease was signed by defendant’s former treasurer who said he had authority to sign on defendant’s behalf.  Plaintiff sued after the defendant defaulted and won an Illinois default judgment against both the corporate and individual defendants of over $92,000.

About fifteen months later, the corporate defendant moved to vacate the judgment under Code Section 2-1401 (for judgments more than 30 days but less than 2 years old).  It claimed the Illinois court lacked personal jurisdiction over it.   The trial court denied the motion and found that defendant  was subject to Illinois long-arm jurisdiction.

The First District reversed.

Holding that the trial court lacked jurisdiction over the Tennessee defendant, the court catalogued the key Illinois jurisdictional rules for foreign defendants:

the plaintiff has the burden of establishing jurisdiction over an out-of-state defendant;

– Code Section 2-209(c) (Illinois’ long-arm statute) provides that an Illinois court can exercise jurisdiction over a foreign defendant if permitted by the Illinois Constitution and the U.S. Constitution;

– Federal due process requires a foreign defendant to have “minimum contacts” with the forum state and to have “purposely availed” itself of the privileges of conducting activities in the forum state;

– Federal due process involves three factors: (1) whether the defendant had minimum contacts such that it had “fair warning” it may be haled into the forum state’s court; (2) the claim against the foreign defendant arose from or is related to the defendant’s contacts with the forum state; and (3) whether it’s reasonable to require the foreign defendant to litigate in another state;

– For Illinois to have general jurisdiction over an out-of-state defendant, the defendant must have “continuous and systematic” business contacts with the forum state;

– Where specific jurisdiction applies, the foreign defendant can only be sued if the action arises from or is related to the defendant’s conduct in the forum state;

– In a breach of contract suit against an out-of-state defendant, the critical jurisdictional factors are (1) who initiated the transaction; (2) where the contract was formed; and (3) where the contract was performed;

– A choice-of-law contractual provision is relevant, but is not by itself a sufficient basis to subject a defendant to jurisdiction in another state.

(¶¶ 13-17).

Applying these rules, the First District found that Illinois lacked jurisdiction over the Tenn. defendant.  First, there was no general jurisdiction since the corporation’s contacts with Illinois were sparse: they weren’t continuous and systematic.  Also, the agent who signed the lease lacked authority to bind the defendant.  It offered an uncontested affidavit that established the agent was never authorized to sign contracts for the defendant.  The court also found that since defendant didn’t know about the lease until after the default judgment was entered, there was no ratification of the agent’s signing the lease.  ¶¶ 19-20.

The Court reversed the trial court’s jurisdiction ruling and voided the judgment against the defendant.

Take-aways: For an out-of-state corporation to be subject to Illinois specific jurisdiction, its contacts with Illinois must form the basis for the lawsuit.  In addition, where a plaintiff is trying to impute an agent’s actions to a corporate principal, the plaintiff must show that the principal said or did something to create in the plaintiff the reasonable belief that the agent could bind the principal.  My question is why didn’t the plaintiff file a counter-affidavit which detailed the actions of the agent and principal which led the plaintiff to assume the agent had authority to bind the principal? It’s not clear whether it would have made a difference; but a counter-affidavit would have at least given the plaintiff a fighting chance.

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Court Rejects Neighboring Property Owners’ Due Process Claim to Prevent ‘Wolf Point’ Construction in River North Area (Chicago)

I thought I was gonna have to dust off my 18,000-pound crimson-covered Laurence Tribe Constitutional Law book from 1993 Fall semester for this one.   

Seriously though, when I see a case that discusses substantive and procedural due process issues refers to Federal and State Constitutional amendments, my PTSD flashbacks to 1L are triggered.  

In Residences at Riverbend Condominium Association v. City of Chicago, 2013 WL 6080685 (N.D.Ill. 2013), the Northern District dismissed the plaintiff condominium association’s lawsuit to prevent the City from enforcing a zoning ordinance change that would allow a large-scale construction project to commence in Chicago’s River North neighborhood. 

The basis for the Rule 12(b)(6) dismissal: plaintiff failed to allege a protectable due process property interest in preventing the construction project.

Facts: The lawsuit involves Wolf Point – land on the north bank of the Chicago river near the Merchandise Mart which has been vacant for about 40 years. 

In 2013, the City approved a zoning variance that allows the site’s owners to construct a three-building mixed use development on the site.  The plaintiffs, adjoining land owners, sued to bar the development; citing increased pedestrian and vehicular traffic in the area, plus the project’s unbearable strain on city infrastructure.

The plaintiffs also claimed they weren’t properly notified of the zoning change or given a meaningful chance to oppose it as required under the law.  The Court granted defendant’s motion to dismiss with prejudice.

Rules/Reasoning:

A due process claimant must establish a legitimate property interest.  U.S. Const. Amend XIV; Ill. Const. of 1970, art. I, s. 2 (and cases interpreting them).  

He must show he was deprived of life, liberty or property without sufficient procedural or substantive government safeguards. 

A due process clause property interest means an entitlement or benefit that the state can’t tamper with or remove.  *2-3.  A mere expectation or hope, though, doesn’t rise to the level of a due process property right.  *4.

The Court held that the plaintiffs lacked a property interest in Wolf Point.  They don’t own the land and any interest they have in receiving statutory notice of the zoning change isn’t a right of constitutional dimension.

The Court also found that zoning challenges based on a state’s failure to follow its own notice procedures should be brought in state not Federal Court.  *4.

The Northern District also noted that under Illinois law, a property owner’s rights to light, air, or certain property values – while certainly desirable – still don’t merit constitutional protection. property interest. *4. 

And since the plaintiffs don’t own the Wolf Point property and at most, only alleged a right to statutory zoning change notice, the plaintiffs failed to allege a colorable right to prevent the City from enforcing the amended zoning rule.

Take-away: A valid constitutional due process claim must go beyond speculation or unilateral expectation.  Instead, the interest being sued on must constitute an entitlement or benefit that the government has no discretion to remove or reduce.  

But all may not be lost for the plaintiffs: the Riverbend court suggests that plaintiffs may be able to seek administrative review in the Circuit Court to overturn the amended zoning ordinance.