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IDS LIFE INS. CO. v. SUNAMERICA

January 2, 1997

IDS LIFE INSURANCE COMPANY, Plaintiff-Appellee,
v.
SUNAMERICA, INC., ROYAL ALLIANCE ASSOCIATES INC., SUNAMERICA SECURITIES INC. and SUN LIFE INSURANCE COMPANY OF AMERICA, Defendant-Appellants. AMERICAN EXPRESS FINANCIAL ADVISORS, INC., Plaintiff-Appellee, v. SUNAMERICA, INC., ROYAL ALLIANCE ASSOCIATES INC., SUNAMERICA SECURITIES INC. and SUN LIFE INSURANCE COMPANY OF AMERICA,



The opinion of the court was delivered by: ANDERSEN

 This case is before the court on the following motions: defendant SunAmerica, Inc.'s ("SunAmerica") motion to dismiss for lack of personal jurisdiction; plaintiffs IDS Life Insurance Company ("IDS") and American Express Financial Advisors, Inc. ("American Express") motion for preliminary and permanent injunctive relief; plaintiffs' motion in limine; and defendants, Royal Alliance Associates, Inc. ("Royal"), SunAmerica Securities, Inc. (SunAmerica Securities"), SunAmerica, and Sun Life Insurance Company of America ("Sun Life") motion in limine. *fn1" For the reasons stated below, we grant SunAmerica's motion to dismiss for lack of personal jurisdiction, grant in part and deny in part plaintiffs' motion for injunctive relief, deny plaintiffs' motion in limine, and grant in part and deny in part defendants' motion in limine.

 BACKGROUND

 Plaintiffs have filed two substantially identical amended complaints against defendants seeking injunctive relief. Plaintiffs assert five causes of action against defendants: unfair competition and tortious interference with contract; violations of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); violations of the Copyright Act of 1976, 17 U.S.C. § 101 et seq.; misappropriation of trade secrets; and intentional interference with business relationships.

 Plaintiffs claim that defendants are inducing plaintiffs' sales agents to leave plaintiffs and earn windfall profits for both the agents and defendants by switching plaintiffs' customers out of the insurance and securities products these customers hold through plaintiffs and re-selling these customers new insurance and securities products through defendants. Plaintiffs claim that such conduct is prohibited by the agents' contracts with plaintiffs and by state insurance laws. Plaintiffs further claim that defendants actively induce plaintiffs' agents to engage in this conduct by indemnifying the agents and otherwise assisting them and rewarding them for this conduct. As a result, plaintiffs claim that defendants have wrongfully destroyed thousands of plaintiffs' long-term customer relationships, injured plaintiffs' business reputation, and misused plaintiffs' confidential and trade secret information -- all causing plaintiffs significant and irreparable harm. Plaintiffs claim that defendants' wrongful actions in this longstanding dispute have been occurring since the late 1980's through defendants' predecessor or present companies.

 Applicants are provided with copies of the contract ("the Contract") which governs plaintiffs' relationship with its agents. As a condition of their appointment, all plaintiffs' agents are required to execute this Contract. Applicants are given as much time to review the proposed Contract as they wish and may seek counsel before entering into it. The Contract is counter-signed by plaintiffs and becomes effective when the applicant completes the pre-appointment process and decides to work for plaintiffs.

 After the first year, the agents sell plaintiffs' products and services as independent contractors. The agents lease office space and the majority of equipment from plaintiffs, but employ their own staff and pay their own overhead and operating expenses. The Contracts with plaintiffs prohibit the agents from procuring or servicing investment products or insurance products that were not acquired through plaintiffs.

 Plaintiffs' Contracts also contain several covenants. One covenant in the Contracts prohibits agents, for a one-year period after leaving plaintiffs employment, from soliciting or selling insurance or securities products in the territory where they worked for plaintiffs to the clients disclosed to them while working for plaintiffs. The Contracts provide that:

 
For one year after this Agreement ends, you agree that you will not, in the territory where you sought applications for Products or Services under this or any other agreement with IDS Life [American Express] or an Affiliate, directly or indirectly offer for sale, sell or seek an application for any Product or Service issued or provided by any company to or from a Client you contacted, dealt with or learned about while you represented IDS Life [American Express] or an Affiliate or because of that representation.

 IDS and American Express Contracts at Section IV.1(g).

 Other covenants in plaintiffs' Contracts prohibit agents, during and after their affiliation with plaintiffs, from disclosing the identities of plaintiffs' clients and from otherwise misusing confidential and trade secret information obtained through plaintiffs. Plaintiffs' Contracts provide that:

 
While this Agreement is in effect and after it ends, you agree that you will not reveal the contents of any IDS Life [American Express] property or allow them to be revealed, except in connection with carrying out your duties under the Agreement. You will not reveal the names or addresses of IDS Life [American Express] Clients or any other information about them, including financial information.
 
. . .
 
All [client] Records and Materials are the property of IDS Life [American Express], an Affiliate or one of their associated companies. All rights to Records and Materials that you prepare or create in connection with the performance of this Agreement are hereby assigned to IDS Life [American Express]. You agree that you will not allow the reproduction of the Records and Materials in any manner whatsoever, except pursuant to written policy or consent of IDS Life [American Express].
 
. . .
 
You agree that the identity of Clients and potential Clients is confidential information. For one year after this Agreement ends, you agree not to use any such information in connection with any business in competition with IDS Life [American Express] or an Affiliate.

 IDS and American Express Contracts at sec. IV.1(e), (c) and (f).

 Another covenant in plaintiffs' Contracts requires agents to return all confidential and proprietary business documents and files upon leaving plaintiffs employment. The Contracts provide:

 
You are responsible for the safekeeping of these items . . . When this Agreement ends, all of these items remain IDS [American Express] property. You must return all of them, . . . without demand or compensation.

 IDS and American Express Contracts at sec. IV.1(d).

 Except for the one-year limitation on sales of products and services to the clients formerly assigned to them and the restrictions on the use of plaintiffs' confidential and trade secret information, the covenants in plaintiffs' Contracts with its agents do not restrict to whom the agents may sell or where, how or for whom they may work after leaving plaintiffs.

 Defendants claim that plaintiffs lose numerous agents every year to competitors. Defendants present the following evidence: In past years, agent defections from plaintiffs to their competitors have occurred at a rate of more than 500 per year; up to 70% of all agents appointed by plaintiffs leave the firm within four years; of the agents who leave annually, over 40% are acknowledged to join competitors; fewer than 2.3% of plaintiffs' agents who have re-affiliated with competitors in recent years have done so with defendants. Moreover, defendants claim that plaintiffs are thriving because they have a customer retention rate of 93.3% and their net income rose 20% to $ 428 million in 1994.

 Plaintiffs seek to restrain defendants from continuing to convert plaintiffs' securities and insurance customers and customer assets. Plaintiffs are not seeking to enjoin defendants from hiring plaintiffs' agents, but merely to restrain defendants from taking its clients, client assets, trade secrets and copyrighted material in violation of the Contracts.

 We have previously held that plaintiffs' claims against SunAmerica Securities, Inc. and Royal Alliance Associates, Inc. are subject to arbitration, while plaintiffs' claims against defendants SunAmerica, Inc. and Sun Life Insurance Company of America are not subject to arbitration. Plaintiffs seek a preliminary injunction as to the claims that are subject to arbitration and a permanent injunction as to the claims that are not subject to arbitration. However, we decline to address plaintiffs' motion for permanent injunctive relief at this stage. Therefore, at this time, we rule only on plaintiffs' motion for preliminary injunctive relief and leave decision on plaintiffs' application for permanent injunctive relief to another day.

 DISCUSSION

 I. SUNAMERICA'S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION

 This Court has personal jurisdiction over a non-resident defendant only if an Illinois court would have jurisdiction. Nucor Corp. v. Aceros Y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572 (7th Cir. 1994); FMC Corp. v. Varonos, 892 F.2d 1308, 1310 (7th Cir. 1990). Plaintiffs bear the burden of proving sufficient facts to establish personal jurisdiction. E.J. McGowan & Associates, Inc. v. Biotechnologies, Inc., 736 F. Supp. 808, 809 (N.D.Ill. 1990); Grafon Corp. v. Hausermann, 602 F.2d 781, 783 (7th Cir. 1979). Plaintiffs must first establish the existence of jurisdiction under Illinois law and then show that the exercise of jurisdiction over the defendant will not offend due process. Jacobs/Kahan & Co. v. Marsh, 740 F.2d 587, 589 (7th Cir. 1984); Harold M. Pitman Co. v. Typecraft Software Ltd., 626 F. Supp. 305, 308 (N.D.Ill. 1986).

 There are two ways in which a plaintiff can establish personal jurisdiction over a nonresident corporate defendant. First, Illinois' long-arm statute permits the exercise of jurisdiction over claims which arise out of the defendant's transaction of business, or commission of a tort, in Illinois. 735 ILCS 5/2-209(a)(1) and (2). The transaction of business test may be satisfied by an isolated act as long as plaintiff's claim arises out of that act. Marsh, 740 F.2d at 591; Johnston v. United Presbyterian Church in U.S. of America, Inc., 103 Ill. App. 3d 869, 431 N.E.2d 1275, 59 Ill. Dec. 518 (Ill.App.Ct. 1981). Second, the long-arm statute also provides that an Illinois court may exercise jurisdiction over a "corporation doing business within this State." 735 ILCS 5/2-209(b)(4). A corporation is "doing business" in Illinois if it engages in regular activities in Illinois, not occasionally or casually, but with "a fair measure of permanence and continuity." Michael J. Neuman & Associates, Ltd. v. Florabelle Flowers, Inc., 15 F.3d 721, 724 (7th Cir. 1994); Cook Associates, Inc. v. Lexington United Corp., 87 Ill. 2d 190, 429 N.E.2d 847, 57 Ill. Dec. 730 (Ill. 1981). The decision as to whether a corporation's in-State activities are sufficiently permanent and continuous to qualify as "doing business" is to be made on a case-by-case basis and depends on the unique situation presented by a particular case. Hulsey v. Scheidt, 258 Ill. App. 3d 567, 572, 630 N.E.2d 905, 908, 196 Ill. Dec. 740 (Ill.App.Ct. 1994); Maunder v. DeHavilland Aircraft of Canada, Ltd., 102 Ill. 2d 342, 466 N.E.2d 217, 80 Ill. Dec. 765 (Ill. 1984), cert. denied, 469 U.S. 1036, 83 L. Ed. 2d 401, 105 S. Ct. 511 (1984).

 The constitutional due process analysis for personal jurisdiction imposes two requirements. First, the defendant must have sufficient minimum contacts with the state to comport with "traditional notions of fair play and substantial justice." See International Shoe Co. v. State of Washington, Office of Unemployment Compensation and Placement, 326 U.S. 310, 90 L. Ed. 95, 66 S. Ct. 154 (1945); Burger King Corp. v. Rudzewicz, 471 U.S. 462, 85 L. Ed. 2d 528, 105 S. Ct. 2174 (1985). The defendant must purposefully avail himself of the privilege of conducting activities in the forum state such that he invokes the benefits and protections of the law. Hanson v. Denckla, 357 U.S. 235, 2 L. Ed. 2d 1283, 78 S. Ct. 1228 (1958). His activities must be of the quality and nature that he would anticipate being haled into that jurisdiction's court, World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 62 L. Ed. 2d 490, 100 S. Ct. 559 (1980), and the relationship with the forum must not be "random, fortuitous, or attenuated." Burger King Corp., 471 U.S. at 475-76. Second, there must be reasonably adequate notice to afford the party an opportunity to defend. Id.

 A. SunAmerica's Commission of a Tort in Illinois

 The Illinois long-arm statute gives Illinois courts jurisdiction over causes of action arising from the "commission of a tortious act within this State." 735 ILCS 5/2-209(a)(2). Plaintiffs contend that SunAmerica is subject to the court's jurisdiction as a result of tortious acts allegedly committed directly by SunAmerica, or which SunAmerica controlled or directed the defendant subsidiaries in committing.

 Plaintiffs generally assert that SunAmerica has committed tortious acts against plaintiffs in Illinois. The tortious acts alleged by plaintiffs concern the improper solicitation of plaintiffs' financial planners. However, plaintiffs have presented no evidence that SunAmerica itself committed these wrongdoings.

 Plaintiffs argue that we should exercise jurisdiction over SunAmerica because the complaints allege that SunAmerica committed tortious acts against Plaintiffs in Illinois. However, the complaints do not anywhere contain specific allegations that SunAmerica committed tortious acts. The specific paragraphs of the complaints which plaintiffs identify as support for their contention do not even mention SunAmerica, much less establish that SunAmerica has committed any tortious acts. Significantly, throughout the complaints, plaintiffs refer only to alleged conduct by the defendant subsidiaries, without ever attributing the conduct to SunAmerica.

 Having failed to establish that SunAmerica itself directly committed torts in Illinois, plaintiffs next argue that jurisdiction is proper because SunAmerica directed and/or controlled its subsidiary defendants in committing the tortious acts alleged in the complaints.

 It is well-established that the existence of a parent-subsidiary relationship is generally not a sufficient basis for exercising personal jurisdiction over an out-of-state parent. Integrated Business Information Service (Proprietary) Ltd. v. Dun & Bradstreet Corp., 714 F. Supp. 296, 299 (N.D. Ill. 1989). In Integrated Business, the court held that jurisdiction over the local subsidiary does not confer jurisdiction over the foreign parent if the subsidiary's presence in the state is primarily for the purpose of carrying on its own business and the subsidiary has preserved some semblance of independence from the parent. Integrated Business, 714 F. Supp. at 299, 301.

 Thus, in order for plaintiffs to establish personal jurisdiction over SunAmerica based on their theory that SunAmerica directed or controlled the actions of the defendant subsidiaries, plaintiffs must present sufficient evidence to show that SunAmerica exerted substantial control over its subsidiaries. Plaintiffs have failed to meet this burden.

 In Integrated Business, the court noted that the cases in which Illinois courts have found that a parent company sufficiently controlled its subsidiary to vest the court with jurisdiction, involved subsidiaries which existed for the sole purpose of selling or servicing the parent corporation's products. Id. at 300 (citing Maunder v. DeHavilland Aircraft of Canada, 102 Ill. 2d 342, 466 N.E.2d 217, 80 Ill. Dec. 765, cert. denied, 469 U.S. 1036, 83 L. Ed. 2d 401, 105 S. Ct. 511 (1984); Schlunk v. Volkswagenwerk Aktiengesellschaft, 145 Ill. App. 3d 594, 503 N.E.2d 1045, 105 Ill. Dec. 39 (1st Dist. 1986), aff'd on other grounds, 486 U.S. 694, 100 L. Ed. 2d 722, 108 S. Ct. 2104 (1988)). In this case, it has not been shown that the subsidiaries exist for the sole purpose of selling SunAmerica's products.

 Finally, the Integrated Business court found that absent the type of control inherent in cases such as Schlunk and Maunder, the "overlap of executives and directors" between the parent and subsidiary . . . does not approach the level of control" required to vest the Court with jurisdiction. 714 F. Supp. at 300. Likewise, in Main Bank of Chicago v. Baker, 86 Ill. 2d 188, 427 N.E.2d 94, 56 Ill. Dec. 14 (1981), the court held that for corporate identity to be disregarded it must be shown that one corporation is so controlled and its affairs so conducted that it is a mere instrumentality of another, and that observance of the fiction of separate existence would promote injustice.

 In this case, SunAmerica and the defendant subsidiaries maintain separate corporate records and comply with corporate formalities. Moreover, the defendant subsidiaries are not undercapitalized and the corporate funds are not co-mingled. There is simply no evidence to support plaintiffs' theory that jurisdiction is warranted over SunAmerica because the entities are so co-mingled that they are mere instrumentalities of each other.

 Plaintiffs argue that SunAmerica has a general oversight role in the subsidiaries' recruiting of agents. This court has recognized that general oversight alone by a parent corporation does not warrant jurisdiction. J.D. Marshall Intern., Inc. v. Redstart, Inc., 1989 U.S. Dist. LEXIS 15758, 1989 WL 165070 (N.D. Ill. 1989). In J.D. Marshall, the court stated:

 
It is an economic fact of life that subsidiaries are subject to the overall direction of the parent, with a unity of interest and common objectives, as the Supreme Court pointed out in a different context in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771-774, 81 L. Ed. 2d 628, 104 S. Ct. 2731 (1984). . . The evidence adduced by plaintiff discloses normal parent-subsidiary relationships, but no more. It does not establish the intrusive control of insubstantial subsidiaries by a parent which lead to a disregard of the separate corporate entities.

 Id. at *2 (citing Savin Corp. v. Heritage Copy Products, 661 F. Supp. 463 (M.D. Pa. 1987)). Therefore, we reject plaintiffs' argument.

 Plaintiffs next argue that SunAmerica's control over the defendant subsidiaries is evidenced by its alleged involvement in day-to-day decision making at the subsidiaries. The only proof offered of this alleged involvement is the deposition testimony of Gary Krat, a SunAmerica senior officer and chief executive/senior officer and director of the subsidiaries. However, Krat's testimony does not prove plaintiffs' contention. When asked what role Mr. Krat has with respect to recruiting for either SunAmerica Securities or Royal, he answered that he has none. Krat Dep. Tr. (Ex. 61) at 50-51, 53.

 As further evidence of SunAmerica's purported involvement with the defendant subsidiaries, plaintiffs claim that Mr. Krat meets with agents defendants are recruiting from plaintiffs. They claim that this is established by the deposition testimony of Susan Harris and Francis Hayes. The sum total of Mr. Hayes' testimony in this regard is as follows:

 
Q: Does Mr. Krat ever meet with recruits.
 
A: Very infrequently.

 Hayes Dep. Tr. (Ex. 56) at 39. Ms. Harris' testimony is similarly unhelpful to plaintiffs. She merely states, in response to a question whether Mr. Krat is involved in recruitment for the broker/dealers, "I assume that would be part of his executive responsibilities." Harris Dep. Tr. (Ex. F) at 124.

 Finally, plaintiffs contend that SunAmerica's control over the alleged tortious acts of the defendant subsidiaries is evidenced by the fact that SunAmerica's President, Eli Broad, has announced to the investing community his plans to increase the SunAmerica sales force. Even if plaintiffs' evidence could establish the foregoing, it does not follow that SunAmerica controls the defendant subsidiaries or directed them to engage in the alleged wrongful conduct set forth in the complaints. As discussed above, it is normal and expected that parent and subsidiary corporations will have a unity of interest and, thus, the fact that the president of a parent company would foster expectations of growth by its subsidiaries is of no jurisdictional import.

 Thus, the record demonstrates that SunAmerica did not itself commit tortious acts against plaintiffs in Illinois, nor did it direct or control its subsidiaries' alleged commission of such acts. Accordingly, personal jurisdiction may not be asserted over SunAmerica pursuant to the "tortious act" provision of the Illinois long-arm statute.

 B. SunAmerica's Transaction of Business in Illinois

 Plaintiffs can establish personal jurisdiction over SunAmerica under the "doing business" test in one of two ways. First, jurisdiction may be proper if plaintiffs' claims arise out of SunAmerica's transaction of business in Illinois. In such a case, the test may be satisfied by even an isolated act so long as plaintiffs' claims arise out of that act. In this case, there is no evidence that plaintiffs' claims lie in the wake of SunAmerica's commercial activities in Illinois, and plaintiffs do not seriously contest this. Therefore, jurisdiction may not be asserted under this test.

 The second way in which jurisdiction may be asserted under the "doing business" requirement is to establish that SunAmerica has been carrying on "continuous and systematic" business in Illinois, which can be unrelated to plaintiffs' claims. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416, 80 L. Ed. 2d 404, 104 S. Ct. 1868 (1984).

 In this case, plaintiffs have failed to demonstrate that SunAmerica conducts a "systematic and continuous" part of its general business in Illinois. SunAmerica is incorporated in Maryland with its principal place of business in Los Angeles, California. It has no property in Illinois, *fn2" is not registered to do business in Illinois, pays no taxes in Illinois, has no sales or other business office or employees in Illinois, and conducts no sales of products or services in Illinois.

 Plaintiffs point to several purported contacts between SunAmerica and Illinois, which plaintiffs contend satisfy the requisite "continuous and systematic" business standard. We will address each contention in turn.

 Furthermore, Susan Harris, who testified that she was involved in negotiating the credit agreements, stated that all of the negotiations were conducted with the lead bank, Citibank, which is not located in Chicago, but in New York. Thus, no evidence exists that SunAmerica had any contact whatsoever with the First National Bank of Chicago or the State of Illinois, in order to obtain the credit agreement.

 While plaintiffs urge this court to find that the credit agreements evidence "significant and ongoing business in Illinois," they fail to support this contention. Even assuming that plaintiffs have on more than one occasion borrowed money from, and sent notices to, The National First Bank of Chicago pursuant to the agreements, the sporadic borrowing of money is neither regular, nor ongoing and cannot subject SunAmerica to the personal jurisdiction of this court.

 Plaintiffs next claim that SunAmerica is "aggressively advertising and marketing its products *fn3" in Illinois." The only evidence that plaintiffs point to as proof of this contention is that: (1) SunAmerica has a site on the Internet; (2) SunAmerica has advertisements in nationally circulated newspapers and magazines; (3) SunAmerica advertises on national television; and (4) SunAmerica, in its national advertisements, provides a toll-free number.

 Plaintiffs do not demonstrate that SunAmerica has directed any advertisements specifically to Illinois, or even to any region smaller than the entire country. They do not claim that SunAmerica had to travel to Illinois, or deal with any Illinois person or entity, in connection with its national advertising campaign. Thus, the national advertising campaign does not involve systematic and continuous contact with Illinois.

 Plaintiffs ask this court to hold that any defendant who advertises nationally or on the Internet is subject to its jurisdiction. It cannot plausibly be argued that any defendant who advertises nationally could expect to be haled into court in any state, for a cause of action that does not relate to the advertisements. Such general advertising is not the type of "purposeful activity related to the forum that would make the exercise of jurisdiction fair, just or reasonable." Rush v. Savchuk, 444 U.S. 320, 329, 62 L. Ed. 2d 516, 100 S. Ct. 571 (1980) (citations omitted).

 Similarly misplaced is plaintiffs' reliance on information contained in SunAmerica's Form 10-K, which references certain of SunAmerica's debt offerings in which The First National Bank of Chicago acts as indenture trustee, and a document entitled "Statement of Eligibility of Trustee." Neither of the foregoing documents provides any of the information that would be necessary to establish the extent of SunAmerica's contacts with Illinois resulting from the debt offerings.

 Plaintiffs do not offer any evidence indicating where the indentures were negotiated or signed, whether SunAmerica is required to travel to Illinois, or to communicate with the trustee in Illinois in connection with those agreements. Thus, plaintiffs' evidence does not support plaintiffs' assertion that the bond indentures demonstrate systematic and continuous contacts with Illinois.

 Plaintiffs likewise cannot hope to sustain personal jurisdiction over SunAmerica by reliance on "swap" agreements allegedly entered into with The First National Bank of Chicago. Plaintiffs do not offer any specific evidence regarding the nature and extent of SunAmerica's ...


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