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Philos Technologies, Inc v. Philos & D

May 22, 2012

PHILOS TECHNOLOGIES, INC., PLAINTIFF,
v.
PHILOS & D, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Milton I. Shadur Senior United States District Judge

MEMORANDUM OPINION AND ORDER

This litigation involves many parties named "Philos" or some variation thereof on both sides of the "v." sign. It has already been up to the Court of Appeals once, so what follows is an account of the facts and procedural history necessary to decide whether this Court may exercise personal jurisdiction over defendants. Additional procedural history is recounted in Philos Tech., Inc. v. Philos & D, Inc., 645 F.3d 851 (7th Cir. 2011) ("Philos I").

Facts and Procedural History

Philos Ko ("Ko") controls Illinois corporation Philos Technologies, Inc. ("Philos Tech"), the plaintiff in this case (T. Mem. 2-3).*fn1 Philos Tech is affiliated with South Korean company PLS Tech Korea ("PLS")(T. Mem. 6).*fn2

In the fall of 2007 Ko approached two South Korean businessmen, Don-Hee Park ("Don-Hee") and Jae-Hee Park ("JaeHee") with a proposal to start a business selling kitchen knives and shears in South Korea (D. Mem. 2). Ko, Don-Hee and Jae-Hee created a byzantine corporate structure for that purpose. DonHee and Jae-Hee first created Philos & D, Inc. ("Philos & D"), a South Korean corporation (D. Mem. 3)--all three are now co-defendants in this case. Philos & D then entered into two agreements with PLS: a joint venture agreement and a license agreement (D. Mem. 3).

What happened next is disputed. Philos Tech says that JaeHee suggested that it contribute additional capital to Philos & D, so that the latter could take advantage of favorable South Korean tax treatment given to companies with foreign investors (T. Mem. 7). Don-Hee then traveled to the Philos Tech facility in Wheeling, Illinois and negotiated the nature of that capital contribution: a machine for treating the surface of knives and shears (id. 7-8). In exchange for that machine Philos Tech was to receive an increased equity stake in Philos & D. Philos Tech manufactured the machine in Wheeling and shipped it to Philos & D in South Korea (id.), but Philos & D never issued additional equity shares to Philos Tech (id. at 8).

Not so, say Philos & D, Don-Hee and Jae-Hee. As they tell it, Philos Tech's investment in Philos & D was implemented through a sham transaction. Instead PLS actually manufactured the machine and shipped it to Philos Tech (D. R.Mem. 9-10). Philos Tech put American labels on the machine (so that South Korean authorities would not catch on to the ruse), then shipped the machine to Philos & D, which recorded the machine as a foreign investment (id.). Don-Hee did make a trip to Wheeling, but he merely took a tour of the Philos Tech facilities (D. Mem. 4).

Both sides agree on what happened next: Philos Tech sued

Philos & D, Don-Hee and Jae-Hee in Illinois. None of the defendants responded, and this Court's then colleague Honorable William Hibbler entered a default judgment against them. When Philos Tech attempted to enforce the judgment in Korea, an attorney filed an appearance for defendants in this District Court and moved to vacate the judgment under Fed. R. Civ. P. ("Rule") 60(b)(4) on the ground that personal jurisdiction over defendants was lacking here. Judge Hibbler denied that motion as untimely, but the Seventh Circuit reversed and remanded the case to this District Court for a decision on the merits. This opinion addresses the merits of the Rule 60(b)(4) motion.

Personal Jurisdiction Analysis

In a collateral attack on in personam jurisdiction, defendant bears the burden of proof (Philos I, 645 F.3d at 857). So Don-Hee, Jae-Hee and Philos & D must establish that it would be improper for this District Court to exercise jurisdiction over them. Personal jurisdiction must of course be sustainable under both state law and the United States Constitution. Omni Capital Int'l Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 111 (1987) requires a federal court to determine whether the state in which it sits authorizes the exercise of personal jurisdiction, so this Court looks to the Illinois long-arm statute.

Ordinarily it is a plaintiff's burden to establish by a preponderance of the evidence that the court has personal jurisdiction over the defendant (Philos I, 645 F.3d at 856). Not so here. Because defendants opted to ignore the initial proceedings and then attack the default judgment collaterally, they bear the burden of proving that this District Court lacks jurisdiction over them (id. at 857).

Whether defendants have met that burden is impossible to tell on a cold paper record. What the litigants have offered up here, to say the least, are totally conflicting scenarios.

Recall Philos Tech' story: Jae-Hee e-mailed Philos Tech to propose a transaction (an additional capital contribution), after which Don-Hee visited the Philos Tech plant in Illinois to negotiate a price for the capital, and Philos Tech then manufactured a machine in Illinois and shipped it to Philos & D in South Korea. G.M. Signs, Inc. v. Kirn Signs, Inc., 231 Ill.App.3d 339, 343-44, 596 N.E.2d 212, 215 (2d Dist. 1992) holds that purchasers of Illinois products who deliberately communicate with Illinois manufacturers--as opposed to purchasers who merely order from catalogs without knowing the origin of their purchase--are subject to personal jurisdiction in Illinois ...


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