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Brown v. Panasonic Corp.


May 18, 2006


The opinion of the court was delivered by: Reagan, District Judge


Now before the Court is a fully-briefed remand motion. This personal injury suit commenced with Russell Brown's February 2006 complaint filed in the Circuit Court of Madison County, Illinois. Brown, an Illinois citizen, sued four companies who manufacture welding machines, equipment and supplies.*fn1 He alleged that all four Defendants knew or should have known of serious health hazards inherent in the products they were selling, distributing or using.

More specifically, Brown asserted that Defendants deliberately concealed information about the adverse health effects of welding fumes containing manganese --- neurotoxic fumes to which Brown was directly and indirectly exposed while working in Illinois.

Count I of Brown's complaint alleges negligence against all four Defendants. For example, Brown claims that, in making representations to workers like Brown, Defendants breached their duty to exercise reasonable care, because they knew welding fumes would cause neurological damage to workers.

Count II alleges strict liability (failure to warn) against all four Defendants. For instance, Brown claims that Defendants failed to provide any warnings or instructions regarding use of the welding machines without a source-capture ventilation system.

Count III alleges strict liability (defective design) against all four Defendants. For instance, Brown claims that the welding machines were in a defective condition when they left Defendants' control, because they lacked fume-extraction devices.

On March 30, 2006, Defendant Illinois Tool Works, Inc. ("ITW"), who had been served with process on March 1st, removed the action to this United States District Court, invoking subject matter jurisdiction under the federal diversity statute, 28 U.S.C. § 1332. To properly invoke the federal courts' diversity jurisdiction, the party seeking the federal forum must establish both complete diversity and that the matter in controversy exceeds $75,000, exclusive of interest and costs. Id.; Smith v. General Life and Acc. Ins. Co., Inc., 337 F.3d 888, 892-93 (7th Cir. 2003).

The amount in controversy presents no obstacle here. Brown has alleged severe and permanent injuries, and he seeks damages for pain and suffering (past and future), medical expenses (past and future), lost wages (past and future), and loss of earning capacity. Setting aside the question of whether ITW complied with all procedural requirements of removal,*fn2 the problem here is the apparent absence of complete diversity among the parties.

Plaintiff Brown is an Illinois citizen. Defendant Panasonic is a citizen of Delaware (place of incorporation) and New Jersey (principal place of business). Defendant Toshiba is a citizen of California (place of incorporation) and New York (principal place of business). Defendant Miller Electric is a citizen of Wisconsin (place of incorporation and principal place of business). So far so good. But Defendant ITW is a citizen of both Delaware (place of incorporation) and Illinois (principal place of business).

ITW urges the Court to overlook its Illinois citizenship on the theory that Brown fraudulently joined ITW in this action. The parties largely agree on the test governing fraudulent joinder in this Circuit.

Although a plaintiff is normally free to choose his own forum, he may not join an in-state defendant solely to defeat federal diversity jurisdiction.

Such joinder is considered fraudulent, and is therefore disregarded, if the out-of-state defendant can show there exists no "reasonable possibility that a state court would rule against the [in-state] defendant."

Schwartz v. State Farm Mutual Auto Ins. Co., 174 F.3d 875, 878 (7th Cir. 1999), quoting Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992).*fn3

The question before this Court, then, is whether there is a reasonable possibility that an Illinois court would rule against ITW. The Court has carefully reviewed the memoranda and exhibits presented on both sides of this question, including the arguments for and against piercing the corporate veil.

Brown maintains that he can state a cause of action against ITW based on the relationship between ITW and Defendant Miller Electric --- i.e., Miller Electric is a wholly owned subsidiary of ITW. Brown contends that ITW has disregarded its corporate structure, permitting an Illinois court to pierce ITW's corporate veil, and allowing liability to run from the subsidiary entity (Miller Electric) to the parent company (ITW). Thus, Brown reasons, there is a reasonable possibility that an Illinois court would rule against ITW in this lawsuit.

But Delaware law, not Illinois law, controls the issue of whether ITW (the parent corporation) can be held responsible for the liabilities of Miller Electric (the subsidiary). Stromberg Metal Works, Inc. v. Press Mechanical, Inc., 77 F.3d 928, 933 (7th Cir. 1996)("Efforts to 'pierce the corporate veil' are governed by the law of the state of incorporation...."); Erie Foods International v. Apollo Group & Apollo USA, Inc. -- F.Supp.3d --, 2006 WL 932344, *2 (N.D. Ill. April 10, 2006)("The law of the state of incorporation governs whether to pierce the corporate veil."). See also Fed. R. Civ. P. 17(b)("The capacity of a corporation to sue or be sued shall be determined by the law under which it was organized.").

ITW is incorporated in Delaware. Under Delaware law, the corporate veil can be pierced (and a parent corporation held liable for the acts of its subsidiary), if the subsidiary is, in fact, a mere instrumentality or alter ego of its parent.Phoenix Canada Oil Co., Ltd. v. Texaco, Inc., 842 F.2d 1466, 1477 (3rd Cir. 1988). While many factors are considered in deciding whether to pierce the corporate veil, "the concept of complete domination by the parent is decisive." Id. at 1477.

Moreover, if the corporate veil is to be pierced under the alter ego theory, the corporate structure must cause "fraud or a similar injustice." In re Foxmeyer Corp., 290 B.R. 229, 236 (Bkrtcy. D. Del. 2003)(citing Wallace v. Wood, 752 A.2d 1175, 1184 (Del. Ch. 1999)(Piercing the corporate veil "requires that the corporate structure cause fraud or similar injustice"); Outokumpu Engineering Enterprises, Inc. v. Kvaerner Enviropower, Inc., 685 A.2d 724, 729 (Del. Sup. Ct. 1996)). See also Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp. 260, 267-68 (D. Del. 1989).

Stated simply, the record before this Court does not support the piercing of ITW's corporate veil. There is no evidence of ITW completely dominating Miller Electric, and there is no evidence that ITW's corporate structure caused fraud or similar injustice. Therefore, the Court concludes that there is no reasonable possibility that an Illinois court would rule against ITW.

The Court FINDS that ITW was fraudulently joined and DISMISSES ITW from this action with prejudice. That leaves parties who are completely diverse. The Court already determined that the amount in controversy suffices. Thus, subject matter jurisdiction lies under 28 U.S.C. § 1332.

Accordingly, the Court DENIES Brown's remand motion (Doc. 5). IT IS SO ORDERED.

MICHAEL J. REAGAN United States District Judge

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