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GRUCA v. ALPHA THERAPEUTIC CORP.

September 2, 1998

PEGGY GRUCA, formerly known as PEGGY POOLE, individually and as Administrator of the Estate of Stephen Poole, Deceased, Plaintiff,
v.
ALPHA THERAPEUTIC CORPORATION, a foreign corporation, and THE GREEN CROSS CORPORATION, a Japanese corporation, Defendants.



The opinion of the court was delivered by: GOTTSCHALL

MEMORANDUM OPINION AND ORDER

 In her Fifth Amended Complaint, plaintiff Peggy Gruca seeks to add a new defendant, The Green Cross Corporation ("Green Cross"). Green Cross has made a limited appearance to move to dismiss the Fifth Amended Complaint for lack of personal jurisdiction. For the reasons set forth below, the motion is granted.

 BACKGROUND1

 Gruca filed this action on behalf of herself, her two minor children, and the estate of her late husband, Stephen Poole against four defendants. Poole was a hemophiliac with a severe deficiency of Factor VIII in his plasma. Factor VIII is a protein necessary for clotting. Poole used a commercially prepared product called Factor VIII concentrate, which was prescribed by his doctor, to treat bleeding episodes. The defendants allegedly manufactured the Factor VIII concentrate used by Poole.

 In 1986, Poole was diagnosed with AIDS, and he died in 1987. Plaintiff brought this action asserting a variety of negligence claims against the defendants for their failure to minimize the risks of transmitting viruses, including the virus that causes AIDS, through the Factor VIII concentrate. At the close of a seven-week trial in 1993, a jury returned a verdict in favor of the defendants and the district court entered judgment for defendants. On appeal, plaintiff's motion for a new trial was granted. The case was eventually transferred to this court.

 Three of the four defendants in the 1993 trial settled with plaintiff. Alpha Therapeutic Corporation ("Alpha") was the only one of the four defendants that did not reach a settlement. Plaintiff filed a Fifth Amended Complaint ("the Complaint") against Alpha. The Complaint also named Green Cross as a defendant for the first time. Green Cross is a foreign corporation organized under the laws of Japan and is the parent corporation of Alpha. *fn2"

 Alpha was established by Green Cross in 1978. Green Cross acquired the Abbott Scientific Products Division (ASPD) from Abbott Laboratories, Inc. in 1978 and transferred the assets of ASPD directly to Alpha. Alpha collects plasma from donors and manufactures and sells products made from human plasma.

 In the Complaint, plaintiff alleges that Green Cross and Alpha were negligent in collecting plasma and manufacturing Factor VIII concentrate. Although the Complaint alleges that both Green Cross and Alpha committed the various negligent acts, it is clear from her briefs on the motion to dismiss that plaintiff is not contending that the actions of Green Cross alone are sufficient to provide this court with personal jurisdiction. From the Complaint and the briefs, it appears that Alpha collected plasma from donors and manufactured and sold Factor VIII concentrate in Illinois and that Alpha allegedly sold the Factor VIII that infected Poole with HIV. Plaintiff claims that Green Cross' involvement with Alpha is sufficient to establish personal jurisdiction over Green Cross. In particular, plaintiff argues that Alpha is the alter ego of or was substantially controlled by Green Cross, or alternatively, that Alpha and Green Cross were joint venturers.

 DISCUSSION

 A federal district court in Illinois has personal jurisdiction over a nonresident party only if an Illinois state court would have jurisdiction. Michael J. Neuman & Assoc. v. Florabelle Flowers, Inc., 15 F.3d 721, 724 (7th Cir. 1994). On a motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing a prima facie case of personal jurisdiction. Id. In deciding a motion to dismiss for lack of personal jurisdiction, a court may receive and consider affidavits from the parties. Hedge Assoc. v. Ferraz Corp., 1996 U.S. Dist. LEXIS 859, No. 95 C 4042, 1996 WL 37680, at *1 (N.D. Ill. Jan. 26, 1996). Factual disputes must be resolved in favor of the plaintiff. Id. The plaintiff must show that Illinois law permits jurisdiction and that the exercise of jurisdiction will not offend due process. IDS Life Ins. Co. v. SunAmerica, Inc., 958 F. Supp. 1258, 1264 (N.D. Ill. 1997), vacated in part, 136 F.3d 537 (7th Cir. 1998).

 The Illinois long-arm statute permits the exercise of jurisdiction over claims arising out of the defendant's transaction business or commission of a tort in Illinois. 735 ILCS 5/2-209(a)(1) and (2). The statute also permits jurisdiction over a "corporation doing business" in Illinois. 735 ILCS 5/2-209(b)(4).

 Here, plaintiff does not contend that Green Cross itself engaged in the transactions or committed the torts giving rise to the claims. Likewise, plaintiff does not assert that Green Cross itself is doing business in Illinois. It is undisputed that Green Cross itself has not marketed or sold blood products in Illinois and has not collected or processed plasma in Illinois. Green Cross itself does not conduct any business in Illinois, manufacture or sell any products in Illinois, or have any employees in Illinois. Instead, plaintiff argues that Green Cross' involvement with Alpha is sufficient to permit this court to exercise personal jurisdiction over Green Cross. *fn3" In particular, plaintiff argues that jurisdiction over Green Cross is proper (1) because Alpha is the alter ego of Green Cross or is at least substantially controlled by Green Cross; or, alternatively, (2) because Alpha and Green Cross are joint venturers. There is no dispute that this court has jurisdiction over Alpha. Therefore, to determine if Green Cross is within this court's jurisdiction, it is necessary to examine the relationship between Green Cross and Alpha.

 I. Alpha as Alter Ego of or Substantially Controlled by Green Cross

 Jurisdiction over a subsidiary is not sufficient to confer jurisdiction over an out-of-state parent. IDS, 958 F. Supp. at 1265-66. When a subsidiary is doing business in Illinois, the mere existence of a parent-subsidiary relationship does not enable a court to exercise jurisdiction over a foreign parent. Id. Instead, the party arguing for jurisdiction must allege something more than the existence of the parent-subsidiary relationship and that the subsidiary is doing business in Illinois.

 Courts have not developed a bright-line test for determining when it is appropriate to exercise jurisdiction over a parent corporation based upon the activities of its subsidiary. In Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 69 L. Ed. 634, 45 S. Ct. 250 (1925), the Supreme Court considered whether a subsidiary's activities in North Carolina could establish that the parent corporation was doing business in North Carolina. The Court framed the issue as "whether the corporate separation carefully maintained must be ignored in determining the existence of jurisdiction." Id. at 336. In holding that the parent was not subject to jurisdiction in North Carolina, the Court noted that "the corporate separation, though perhaps merely formal, was real. It was not pure fiction." Id. at 337.

 The continuing validity of Cannon is in doubt. See Gantzert v. Holz-Her U.S., Inc., 1994 U.S. Dist. LEXIS 13976, No. 94 C 0529, 1994 WL 532134, at *4 n.4 (N.D. Ill. Sept. 28, 1994); see generally, Daniel G. Brown, Jurisdiction over a Corporation on the Basis of the Contacts of an Affiliated Corporation: Do You Have to Pierce the Corporate Veil?, 61 U. Cin. L. Rev. 595 (1992); Lea Brilmayer & Kathleen Paisley, Personal Jurisdiction and Substantive Legal Relations: Corporations, Conspiracies and Agency, 74 Calif. L. Rev. 1 (1986). Since Cannon was decided, the constitutional standards for exercising jurisdiction have been drastically revised. *fn4" Most importantly, the "physical presence" test has been replaced by the "minimum contacts" standard. International Shoe Co. v. Washington, 326 U.S. 310, 316, 90 L. Ed. 95, 66 S. Ct. 154 (1945). Thus, in more recent years, courts deciding personal jurisdiction issues have looked at the "real" rather than the "formal" relationship between the parent and the subsidiary. See, e.g., Gantzert, 1994 WL 532134, at *4 n.4.

 Illinois courts appear to use two approaches in examining whether the activities of the subsidiary give rise to jurisdiction over the parent. Under one approach, Illinois courts examine whether the parent and subsidiary have maintained formal separation and observed corporate formalities. If not, then the corporate veil of the subsidiary may be pierced, the activities of the subsidiary may be attributed to the parent, and the court may exercise jurisdiction over the parent. This approach is consistent with Cannon's emphasis on the formal relationship between parent and subsidiary. However, Illinois courts have also shown a willingness to employ a more flexible approach that examines the nature of the activities by the subsidiary and the degree of control exercised by the parent over the subsidiary. These approaches are examined in more detail below.

 A. Tests for Piercing the Corporate Veil and Substantial Control

 As noted above Illinois courts seem to recognize two methods by which a plaintiff can establish jurisdiction over a foreign parent corporation based on the activities of its subsidiary. First, the party alleging jurisdiction can provide evidence that justifies piercing the corporate veil of the subsidiary. See IDS, 136 F.3d at 540 (noting that parent corporations not liable for subsidiaries' tortious acts and not subject to jurisdiction under tort provision of long-arm statute "unless there is a basis for piercing the corporate veil"). In Illinois, a corporation's veil may be pierced only if (1) there is such "unity of interest and ownership that the separate personalities of the corporation" and the subsidiary no longer exist; and (2) "adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice." Hystro Prods., Inc. v. MNP Corp., 18 F.3d 1384, 1388-89 (7th Cir. 1994) (quoting Van Dorn Co. v. Future Chem. and Oil Corp., 753 F.2d 565, 569-70 (7th Cir. 1985)). To determine if there is a sufficient "unity of interest and ownership" between two corporations to justify piercing the veil, Illinois courts look to four factors: "(1) the failure to maintain adequate corporate records or to comply with corporate formalities, (2) the commingling of funds or assets, (3) undercapitalization, and (4) one corporation treating the assets of another as its own." Van Dorn, 753 F.2d at 570.

 Second, a plaintiff can establish jurisdiction over a parent corporation by showing that the parent substantially controls the activities of a subsidiary doing business in Illinois. IDS, 958 F. Supp. at 1266-67; Integrated Bus. Info. Serv. (Proprietary) Ltd. v. Dun & Bradstreet Corp., 714 F. Supp. 296, 300-01 (N.D. Ill. 1989). In both IDS and Integrated Business, the courts looked to an Illinois Supreme Court case, Maunder v. DeHavilland Aircraft of Canada, Ltd., 102 Ill. 2d 342, 466 N.E.2d 217, 80 Ill. Dec. 765 (Ill. 1984), in which the Court found jurisdiction over a foreign parent because the subsidiary was conducting the business of the parent rather than its own business in Illinois. *fn5" Though it was decided prior to Maunder, the opinion in Graco, Inc. v. Kremlin, Inc., 558 F. Supp. 188 (N.D. Ill. 1982) identifies several factors to consider in determining if a parent is so closely linked to its subsidiary that jurisdiction over the subsidiary creates jurisdiction over the parent:

 
Whether the parent arranges financing for and capitalization of the subsidiary; whether separate books, tax returns and financial statements are kept; whether officers or directors are the same; whether the parent holds its subsidiary out as an agent; the method of payment made to the parent by the subsidiary; and how much control is exerted by the parent over the daily affairs of its subsidiary.

 Id. at 191.

 Plaintiff contends that she has provided sufficient evidence to establish jurisdiction under either method. After examining plaintiff's allegations and evidence in support of jurisdiction, the court will ...


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