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Natural Gas Pipe. Co. v. Mobil Rocky Mtn.

OPINION FILED DECEMBER 29, 1986.

NATURAL GAS PIPELINE COMPANY OF AMERICA, PLAINTIFF-APPELLANT AND CROSS-APPELLEE,

v.

MOBIL ROCKY MOUNTAIN, INC., DEFENDANT-APPELLEE AND CROSS-APPELLANT.



Appeal from the Circuit Court of Cook County; the Hon. Benjamin S. Mackoff, Judge, presiding.

JUSTICE BUCKLEY DELIVERED THE OPINION OF THE COURT:

This appeal involves a natural gas purchase contract between Natural Gas Pipeline Company (Natural), a Delaware corporation that buys and transports natural gas, and Mobil Rocky Mountain, Inc. (Mobil), a Delaware corporation that sells and produces natural gas. Mobil has its headquarters in Denver, Colorado, and is not licensed to do business in Illinois and maintains no offices, facilities, properties, assets or employees in Illinois. Natural is a wholly owned subsidiary of MidCon Corporation headquartered in Lombard, Illinois, and maintains an office in Texas.

The contract was negotiated and signed outside of Illinois. Mobil was not an original party to the contract. It first acquired an interest in the contract by means of a partial assignment from Anschutz, the original party to the contract, on July 28, 1982. Natural was not a party to the negotiation or execution of the assignment and received official notification of it three months later in Houston, Texas, as specified in the contract.

At the time the original contract was entered into, natural gas was in short supply and the price was high. Since that time the price has fallen dramatically; the contract price now exceeds the prevailing market price. Because of this price disparity, Natural brought a declaratory judgment action disputing the quantity term in the contract. Mobil moved to quash service of process contending that the circuit court of Cook County lacked in personam jurisdiction over it.

The circuit court granted Mobil's motion to quash service of process and ordered the action dismissed. In addition, the court held that "exercise of jurisdiction over Mobil in the cause meets all constitutional requirements, and that the natural gas sold by Mobil pursuant to the March 12, 1981 gas purchase contract executed by Mobil and Natural has a substantial economic impact on commerce in Illinois."

Both parties have appealed. Natural argues on appeal that the trial court incorrectly quashed service of process and dismissed its action because Mobil was "transacting business" or "doing business" in Illinois. Mobil argues on appeal that the trial court erred in holding that the potential exercise of jurisdiction over Mobil would meet all constitutional requirements and that the natural gas sold by Mobil has a substantial economic impact on commerce in Illinois.

I

• 1 The "doing business" standard is quite high and requires a showing "that the corporation is conducting business in Illinois `of such a character and extent as to warrant the inference that the corporation has subjected itself to the jurisdiction and laws of the district in which it is served.'" (Cook Associates, Inc. v. Lexington United Corp. (1981), 87 Ill.2d 190, 201, 429 N.E.2d 847, 851; see also Kogan v. Longstreet (N.D. Ill. 1974), 374 F. Supp. 47, 50.) Once the doing business standard is satisfied, the defendant is deemed a resident of Illinois and may be sued on causes of action both related and unrelated to its Illinois activities. Cook Associates, Inc. v. Lexington United Corp. (1981), 87 Ill.2d 190, 200, 429 N.E.2d 847.

In support of its argument that Mobil is "doing business" in Illinois, Natural relies primarily on Connelly v. Uniroyal, Inc. (1979), 75 Ill.2d 393, 389 N.E.2d 155, cert. denied (1980), 444 U.S. 1060, 62 L.Ed.2d 738, 100 S.Ct. 992. Connelly held that the profit-making activities of an out-of-State manufacturer in Illinois invokes the benefits of the forum State so that when its goods cause injury because of a defect, the Illinois court will hold the defendant amenable to service of process.

The defendant, Uniroyal, manufactured and sold tires in Belgium. Opel, a subsidiary of General Motors, bought Uniroyal's tires and installed them on cars that it then shipped to the United States for distribution in Illinois and elsewhere. The dispute arose when one of Uniroyal's tires, that Opel had installed, exploded and injured the plaintiff in Illinois. Plaintiff filed a products liability suit, alleging that its defective tires caused his injuries.

Uniroyal challenged Illinois' jurisdiction on the grounds that its principal place of business was located outside of Illinois, that it was not registered to do business in Illinois, that it neither employed agents nor owned property in Illinois, and that it sold nothing in Illinois directly. The supreme court was not persuaded by these arguments, finding instead that the defendant had sufficient contacts with Illinois to justify an exercise of jurisdiction. The court reasoned:

"A manufacturer engages in economic activity within a state as a matter of `commercial actuality' whenever the purchase or use of its product within the state generates gross income for the manufacturer and is not so fortuitous or unforeseeable as to negative the existence of an intent on the manufacturer's part to bring about this result. [Citations.]

A manufacturer's economic relationship with a state does not necessarily differ in substance, nor should its amenability to jurisdiction necessarily differ, depending upon whether it deals directly or indirectly with residents of the state. `With the increasing specialization of commercial activity and the growing interdependence of business enterprises it is seldom that a manufacturer deals directly with consumers in other States. The fact that the benefit he derives from [their] laws is an indirect one, however, does not make [those laws] any the less essential to the conduct of his business; and it is not unreasonable, where a cause of action arises from alleged defects in his product, to say that the use of such products in the ordinary course of commerce is sufficient contact with [such states] to justify a requirement that he defend [there].' (Gray v. American Radiator & Standard Sanitary Corp. [(1961), 22 Ill.2d 432, 442].)

A manufacturer whose products pass through the hands of one or more middlemen before reaching their ultimate users cannot disclaim responsibility for the total distribution pattern of the products. If the manufacturer sells its products in circumstances such that it knows or should reasonably anticipate that they will ultimately be resold in a particular state, it should be held to have purposefully availed itself of the market for its products in that state." 75 Ill.2d 393, 404-06, 389 ...


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