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.

contact: [email protected]

Illinois Wage Payment Act Applies to Ohio Resident -IL 2d Dist.

Elsener v. Brown, 2013 IL App (2d) 120209 (Sept. 2013) examines when personal liability will attach to a corporate officer under Section 13 of the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq. (the “Wage Act”) where that corporate officer lives out-of-state.

Facts: After plaintiff sold the business journal he founded to an Ohio corporation, plaintiff signed a three-year employment contract the Ohio company’s Illinois subsidiary to stay on as the journal’s publisher.  The contract paid plaintiff an annual salary of $85,000 and provided that if he was terminated without cause, he was entitled to a severance payment equal to the amounts owed through the contract’s expiration.  Defendant signed the employment contract as president of the Illinois subsidiary that became plaintiff’s employer.

After plaintiff was fired just 14 months into the three-year term, he sued the Illinois entity and the company president under the Wage Act.  At trial, plaintiff was awarded over $200,000 against the corporate officer who then appealed.

Held: Affirmed

 Rules/Reasoning:

 The Court found that defendant, an Ohio resident, was subject to Illinois’ long-arm jurisdiction since he was a corporate officer of an Illinois business entity.  See 735 ILCS 5/2-209(12).  The court rejected defendant’s “fiduciary shield” doctrine, which immunizes an out-of-state defendant for taking actions in a state that are required by his employer.  The court found that the defendant purposely availed himself of Illinois courts by voluntarily agreeing to serve as corporate president of the Illinois publishing subsidiary.  ¶¶ 41-47.

Substantively, the Second District noted that Section 5 of the Wage Act requires an employer to pay final compensation to a separated employee no later than the next regularly scheduled payday.  820 ILCS 115/5,  ¶ 49-50.  Here, the plaintiff was fired in August 2009 and the next payday was in September 2009.  Under Section 5 of the Wage Act, plaintiff became entitled to the full amount of his salary through the contract expiration date (about 22 months worth of payments) on the next payday.  ¶ 70.

The Court also affirmed the defendant knowingly permitted a Wage Act violation and was personally liable under Wage Act Section 13.  Under Wage Act Section 13, personal liability attaches only if the corporate employer has the ability to pay.  So, if an employer goes out of business, the employee normally can’t sue the corporate officer under the Wage Act since there’s no willful violation by the corporate officer.  ¶¶ 66-67.

Here, though, the chronology was that plaintiff was fired in August, 2009 and the corporate employer didn’t file bankruptcy until several months later in March 2010.  At the next payday – September 2009 – the corporate employer had the ability to pay plaintiff’s contractual severance based on evidence submitted in the employer’s bankruptcy case.  Defendant’s intentional conduct was also established by the multiple emails from plaintiff to defendant requesting his severance payment and defendant’s refusal to pay.  ¶ 77.

Take-awaysElsener’s glaring unanswered question is whether a corporate officer can be liable where there is no underlying finding that the corporate employer violated the Wage Act.  Elsener, ¶ 54.  Here, plaintiff only went to trial against the individual officer and so there was no judgment entered against the corporate employer (due to its bankruptcy).  But since the defendant failed to raise this argument at trial, the Court held that the argument was waived.  The answer would seem to be “no” – an officer cannot be liable without a parallel liability finding against the corporate employer.

Other key holdings from the case include (1) a corporate employer’s agent can still be considered “in this state” under the Wage Act even if he lacks a physical presence in Illinois; (2) a corporate officer’s knowledge of a separated employee’s wage claim can be shown by plaintiff’s unanswered written requests for payment.