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State of Illinois v. Hemi Group LLC

September 14, 2010

STATE OF ILLINOIS, PLAINTIFF-APPELLEE,
v.
HEMI GROUP LLC, DEFENDANT-APPELLANT.



Appeal from the United States District Court for the Central District of Illinois. No. 3:08-cv-03050-Jeanne E. Scott, Judge.

The opinion of the court was delivered by: Kanne, Circuit Judge

ARGUED SEPTEMBER 24, 2009

Before BAUER, KANNE, and EVANS, Circuit Judges.

The state of Illinois sued Hemi Group LLC for selling cigarettes to Illinois residents in violation of state laws and for failing to report those sales in violation of federal law. The district court denied Hemi's motion to dismiss for lack of personal jurisdiction, finding that the Internet transactions sufficed to establish personal jurisdiction over Hemi in Illinois. We affirm.

I. BACKGROUND

Hemi, based out of New Mexico, sells discount cigarettes through its many websites. Customers may place orders online or through mail, telephone, or fax. Customers online may determine their shipping costs by inputting their zip codes on the website. Illinois alleges that Hemi sold cigarettes to Illinois residents through its web-sites. The only specific sales to an Illinois resident that Illinois identified in its complaint were instigated by a special senior agent of the Illinois Department of Revenue, who purchased more than three hundred packs of cigarettes from Hemi-operated websites in 2005 and 2007.

On several of its websites, Hemi states that it will not sell cigarettes to New York residents; on one of those*fn1 sites, it explains that ongoing litigation in New York led to the decision not to sell cigarettes there. On another of those sites, Hemi notes that it sells to every state except New York. Hemi does not specifically single out Illinois residents on any of its websites.

Hemi pays the federal tax on the cigarettes that it sells via its websites, but Illinois law leaves it to the buyers to pay the applicable state tax on cigarettes purchased over the Internet or by mail, phone, or fax. Hemi's web-sites direct customers to check with their states to deter-mine their responsibility for paying state taxes.

The parties agree that Hemi is not a resident of Illinois. It is not incorporated or organized under Illinois law, it is not registered to do business in Illinois, it does not have any offices or employees in Illinois, it does not bank in Illinois, and it has not advertised in print media in Illinois.

Illinois sued Hemi in Illinois state court for failing to submit to Illinois monthly reports of sales to Illinois residents as required by the Jenkins Act, for violating the Prevention Act by shipping cigarettes to Illinois residents that were not licensed distributors or export warehouse operators, and for violating the Enforcement Act and the Consumer Fraud Act by selling brands of cigarettes to Illinois residents that were not in the Illinois Directory.

Hemi removed the case to federal court and moved to dismiss for lack of personal jurisdiction. The district court denied Hemi's motion, finding that Hemi purposefully availed itself of the opportunity to do business with Illinois residents and that due process was not offended by exercising personal jurisdiction over Hemi. The district court, however, stayed the proceedings below to allow Hemi to pursue this interlocutory appeal of the district court's order.

II. ANALYSIS

The sole question on appeal is whether the district court in Illinois may properly exercise personal jurisdiction over Hemi. We review questions of personal jurisdic- tion de novo. ...


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