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Deluxe Ice Cream Co. v. R.C.H. Tool Corp.

decided: January 30, 1984.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 79 C 2352 -- Marvin E. Aspen, Judge.

Coffey, Flaum, Circuit Judges, and Campbell, Senior District Judge.*fn*

Author: Flaum

FLAUM, Circuit Judge.

This is an appeal from the district court's granting of the defendant's motion to dismiss for lack of personal jurisdiction. For the reasons set forth below, we reverse and remand for proceedings consistent with this opinion.

The defendant is a Netherlands corporation that engages in the business of locating potential purchasers of ice cream making and collating equipment for manufacturers and distributors of that equipment. The defendant has only one office, which is located in Santa Monica, California. It has no property or employees in Illinois, nor is it registered with the Illinois Secretary of State as a foreign or domestic corporation. The defendant's sole bank account is at the Lake Shore National Bank in Chicago. In 1974, the defendant agreed to attempt to find purchasers in Europe and in the western United States for S.M.W. Packaging Corporation ("SMW"), an Illinois corporation that manufactures ice cream sandwich making and collating machinery. In return for this service, SMW was obligated to pay commissions to the defendant on the equipment and supplies for which the defendant found purchasers.*fn1

Sumner H. Bates is a 100% stockholder in the defendant corporation. He became a resident of California in 1974, and since that time, he has conducted his business activities through the defendant corporation. Bates and his wife are the managing directors of the defendant corporation, and his sons and daughters are also directors.

At a trade show in Dallas, Texas, in October 1974, SMW had a booth where it demonstrated its equipment. SMW was represented at the trade show by Herbert F. Roehn, Jr., and Joseph Carr. The defendant corporation was listed on the SMW booth as SMW's export representative, and Bates was in attendance at the booth. According to the affidavit of Roehn, several representatives of plaintiff Deluxe Ice Cream Company, an Oregon corporation, attended the show and met with Roehn and Bates. When the show ended, Roehn and Bates went to Illinois. Roehn attested in his affidavit that on October 29, he and Bates met in Morton Grove, Illinois, and discussed a possible sale of ice cream making equipment to the plaintiff. Roehn stated that during the Morton Grove meeting, he and Bates made a contract whereby Bates was to attempt to sell two items of SMW machinery to the plaintiff and was to receive a ten percent commission of the invoice price plus $500 for placing a collating machine. Roehn further recounted that at the Morton Grove meeting, Bates proposed figures that he would submit to the plaintiff during his negotiations with the plaintiff. In addition, Roehn asserted during his deposition that prior to May 21, 1975, he and Bates had a discussion in Chicago regarding the terms of the plaintiff's warranty. Bates, in his deposition, denied meeting with any officer of SMW in Illinois for purposes of discussing the sale of equipment to the plaintiff. There is no disagreement, however, that after October 1974, communications regarding the sale of SMW equipment took place outside Illinois between Bates and representatives of the plaintiff. On May 9, 1975, Bates wrote to Roehn, stating that the president of the plaintiff corporation was "OKing the deal" on the SMW equipment, and that the equipment should be shipped as soon as possible. Shipment of the equipment from SMW in Illinois to the plaintiff in Oregon took place on June 12. The equipment was installed July 7 through July 10, and the plaintiff paid for the equipment on July 31, 1975.

On three or four occasions in 1975 and 1976, Bates visited the plaintiff's plant in Oregon. During some of these visits, Bates was accompanied by Roehn of SMW. In 1976, the plaintiff became dissatisfied with its purchase because of alleged defects in the machinery. In August 1976, the plaintiff demanded its money back, and it sent the machinery to R.C.H. Tool Corporation ("RCH"), an Illinois corporation that had designed, tooled, and manufactured the machinery for SMW.*fn2 A year later, in August 1977, when Bates and Roehn were visiting the RCH plant in Morton Grove, Bates asked RCH to repair the plaintiff's machinery in preparation for resale. Bates later paid $3000 to RCH for the repairs.*fn3

On June 8, 1979, the plaintiff filed this diversity action in federal district court against Bates and SMW for breach of express and implied warranties arising out of the sale of the ice cream making equipment. The complaint was later amended twice to show as defendants Sumner H. Bates, N.V., and RCH. Bates, N.V., filed a motion to dismiss for lack of personal jurisdiction, and the matter was referred to a magistrate, who recommended to the district court that the motion be granted. The district court adopted the magistrate's recommendation on February 18, 1982, and it reaffirmed its decision on March 17, 1982. Over the next several months, negotiations led to a settlement between the plaintiff and RCH. The case was dismissed on November 19, 1982.

In appealing the district court's March 17 decision to grant Bates, N.V.'s motion to dismiss for lack of personal jurisdiction, the plaintiff sets forth two main arguments. First, the plaintiff claims that the ongoing financial relationship between the defendant corporation and SMW created contacts between the defendant corporation and Illinois that were sufficiently connected to the plaintiff's purchase so as to satisfy the jurisdictional requirements of the Illinois long-arm statute. According to the plaintiff, the fact that Bates was present in Illinois to complete the performance of the sales contract by arranging for the repair of the equipment further bolsters the applicability of the Illinois long-arm statute. Moreover, the plaintiff contends that the standards of federal due process are met in this case because Illinois is the most convenient forum and because the defendant corporation availed itself of the benefits and protections of Illinois law through its business relationship with SMW and through its physical presence in Illinois during the course of that relationship. The plaintiff bases its second argument for personal jurisdiction on the "doing business" rule. According to the plaintiff, the defendant corporation is constructively present in Illinois, and therefore amenable to suit, by virtue of the business that it conducts through its only bank account in Chicago.

The defendant corporation, on the other hand, argues first that it is not subject to suit under the Illinois long-arm statute because it had no contacts, meetings, discussions, or other conversations with the plaintiff in Illinois. The defendant's alleged representations to the plaintiff, which form the basis of the plaintiff's claim, were made either in Texas, California, or Oregon. Furthermore, the defendant corporation maintains that personal jurisdiction in this case would not comport with due process primarily because the defendant dealt with the plaintiff outside of Illinois and had no basis on which to expect that it would be sued in Illinois. Also, the location of many of the witnesses outside Illinois, as well as the plaintiff's position that Oregon law will govern the merits of its claims, mitigates against the idea that Illinois is a convenient forum within the meaning of due process. As its second argument against personal jurisdiction, the defendant corporation contends that it is not doing business in Illinois. According to the defendant, its use of an Illinois bank account is not sufficient to constitute the regular, systematic, and continuous business activity that forms the definition of the common law "doing business" rule.

It is established in this circuit that a federal district court has personal jurisdiction over a party in a diversity case only if a court of the state in which the district court is sitting would have such jurisdiction. Lakeside Bridge & Steel Co. v. Mountain State Construction Co., 597 F.2d 596, 598 (7th Cir. 1979), cert. denied, 445 U.S. 907-08, 63 L. Ed. 2d 325, 100 S. Ct. 1087 (1980). In Illinois, a nonresident corporation is amenable to suit if it performs one of the acts enumerated in the Illinois long-arm statute or if it is "doing business" in Illinois. Either approach may be used to establish jurisdiction, so long as due process requirements are satisfied. See International Shoe Co. v. Washington, 326 U.S. 310, 316, 90 L. Ed. 95, 66 S. Ct. 154 (1945). See also Rush v. Savchuk, 444 U.S. 320, 327, 62 L. Ed. 2d 516, 100 S. Ct. 571 (1980).

The due process that is required when a court exercises personal jurisdiction over a litigant was articulated by the United States Supreme Court in International Shoe :

Due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not ...

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