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John Crane Inc. v. Shein Law Center, Ltd.

United States District Court, N.D. Illinois, Eastern Division

March 23, 2017

JOHN CRANE INC., Plaintiff,


          JOHN J. THARP, JR. United States District Judge

         This case presents the question of whether the allegedly fraudulent concealment of material information in law suits filed against an Illinois corporation in another state suffice to permit an Illinois court to exercise personal jurisdiction over the alleged fraudster. The plaintiff, John Crane, Inc. (“JCI”), an Illinois-based asbestos manufacturer, alleges the Shein Law Center and its principal, Benjamin Shein, concealed information during discovery in multiple asbestos exposure lawsuits so they could extract larger recoveries from JCI and other asbestos manufacturers. The Shein defendants are located in Pennsylvania, and have only had contact with Illinois in the sense that they sued JCI in Pennsylvania state court. Because “[d]ue process requires that a defendant be haled into court in a forum State based on his own affiliation with the State, not based on the random, fortuitous, or attenuated contacts he makes by interacting with other persons affiliated with the State, ” Walden v. Fiore, 134 S.Ct. 1115, 1123 (2014) (internal quotation marks omitted), the contacts the defendants have had with this Illinois plaintiff during those asbestos lawsuits are insufficient to confer personal jurisdiction over them in Illinois. Accordingly, this case may not go forward in this Court and is dismissed for want of personal jurisdiction.


         JCI manufactures and distributes industrial sealing products, such as gaskets and packing, and has its principal place of business in Morton Grove, Illinois. Compl. ¶ 10. For some period of time, JCI's products contained asbestos. As other makers of asbestos-containing products went into bankruptcy, JCI has become a “primary defendant” in asbestos litigation. See Pl.'s Ex. 3 at 4, ECF No. 47-4. Benjamin Shein and the Shein Law Center specialize in asbestos-related lawsuits as plaintiff-side counsel. See Compl. ¶¶ 11, 13, 14, 22, 24. They are based in Pennsylvania. Id. at ¶ 11-12. Both Benjamin Shein and the law firm that bears his name are named as defendants, but (as will be seen) there is generally no reason to differentiate them in resolving their motion so this opinion treats them as if they are the same defendant.

         The gist of the complaint is that Shein fraudulently obtained settlements with, and verdicts against, JCI by misrepresenting the exposure of asbestos plaintiffs to JCI's products and concealing their exposure to products of other manufacturers. The complaint focuses on four specific asbestos cases in which JCI (along with other defendants) was sued by Shein, although it alleges the conspiracy stretched beyond these four cases. All four cases were filed in Pennsylvania state courts. Id. at ¶¶ 88, 119, 150, 169. Verdicts were rendered against JCI in all four cases, and JCI paid its portion of the judgments. Id. at ¶¶ 96, 97, 128, 129, 154, 155, 172, 173. JCI alleges that Shein engaged in a variety of deceptive conduct during the litigation of these cases to conceal its clients' exposure to asbestos in products manufactured by other companies, including delaying filing claims with asbestos manufacturers' bankruptcy trusts until after verdicts had been returned against JCI, falsely stating in discovery that its clients had not been exposed to the products of bankrupt manufacturers, and coaching clients not to testify about their exposure to bankrupt manufacturers' products. See Compl. ¶¶ 60, 65, 71. This behavior was intended to mislead JCI and the other asbestos suit defendants into paying larger verdict sums. See Id. at ¶ 77. JCI alleges this increased its litigation costs, prevented it from seeking contribution or indemnity, and prevented effective cross-examination or argument that other products caused the plaintiffs' illnesses. See Pl.'s Resp. at 22, ECF No. 47. JCI became aware of this pattern of conduct sometime during the bankruptcy of one of its competitors, Garlock Sealing Technologies (“Garlock”), where the bankruptcy court sharply criticized these practices and concluded that they undermined the reliability of Garlock's settlement history as an estimator of its future asbestos-related liability.[2] See Pl.'s Mem. at 4.

         During the various Pennsylvania cases against JCI, Shein served complaints on JCI (which noted JCI's Illinois place of business) through CT Corporation, JCI's registered agent in Pennsylvania. See Id. at 7. These complaints named numerous defendants. For example, the Golini case named more than 30 defendants across 10 states and provinces. See Compl. Ex. B at 2-6. JCI was the only Illinois company named as a defendant. See id. Similarly, the Baccus case named 35 defendants across 9 states (the majority being Pennsylvania firms; JCI was the only Illinois company). See Compl. Ex. I at 15-19.

         During the course of the Pennsylvania cases, Shein's discovery responses were served on JCI's local counsel in Philadelphia. See Id. at 7; Pl. Ex. 4. In addition to its local counsel in Pennsylvania, JCI hired a Chicago law firm to be its “National Coordinating Counsel” for its asbestos litigation and the lawyers of that firm exchanged email and telephone calls with Shein's co-counsel (Waters, Kraus & Paul[3]) regarding the Pennsylvania cases. See Pl.'s Ex. 7 at ¶ 5-10. JCI paid its share of the judgments from an account at a New York bank, using checks that included a Morton Grove, Illinois address. See Pl.'s Ex. 6 at 2, ECF No. 47-7. In his deposition, Benjamin Shein testified that he and the firm had no business in Illinois, no offices or homes in Illinois, no clients in Illinois, no referrals from Illinois, no solicitation of clients in Illinois, and had never practiced (and are not licensed to practice) in state or federal court in Illinois. See Def.'s Reply at 2-3, ECF No. 48. No Shein staff traveled to Illinois to meet with JCI or its lawyers. See Id. at 3. Shein may have had some conversations with JCI's Chicago lawyers while those lawyers were in Pennsylvania working on the cases there. See id. Shein or Shein's co-counsel did communicate with JCI's Chicago lawyers via email and telephone on occasion. See Compl. ¶ 94-95; O'Connell Decl., ECF No. 47-8.

         JCI filed this case on June 6, 2016. Shein has moved to dismiss the complaint on a plethora of grounds, including lack of subject matter jurisdiction and personal jurisdiction, improper venue, failure to state a claim, and a statute of limitations problem. The jurisdictional questions must, of course, be addressed and resolved in favor of jurisdiction to proceed to the arguments about the sufficiency and timeliness of the complaint. Zahn v. N. Am. Power & Gas, LLC, 847 F.3d 875, 877 (7th Cir. 2017) (“We first note that the district court may have committed error by addressing the merits after concluding that it did not have jurisdiction to hear the case.”) (citing Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998) (“Without jurisdiction the court cannot proceed at all in any cause. Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause.”)). Although the Court concludes that Shein's challenge to subject matter jurisdiction under the Rooker-Feldman doctrine fails, [4] its argument that this Court lacks personal jurisdiction is persuasive. And because this court is "powerless to proceed" on other matters if it is not satisfied that it has personal jurisdiction, Ruhrgas Ag v. Marathon Oil Co., 526 U.S. 574, 584 (1999), the Court does not address the substantive challenges to the complaint.


         I. Subject Matter Jurisdiction

         Shein's reliance on the Rooker-Feldman doctrine to challenge the Court's subject matter jurisdiction is misplaced. The Rooker-Feldman doctrine recognizes that federal district courts lack jurisdiction to review state court judgments; such review is vested only in the Supreme Court. The doctrine bars “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005).

         That is not what JCI is seeking here. JCI seeks not to overturn the state court judgments but to advance a claim (Shein defrauded us by concealing information) that is independent of the claims asserted in the state court litigation by Shein's clients (JCI injured plaintiffs by exposing them to asbestos). Although the context of these claims is, to some degree, “intertwined” with the asbestos exposure state court litigation (some of the alleged fraud took place in the exposure litigation), that common context does not control the jurisdictional analysis. As the Seventh Circuit explained in Iqbal v. Patel, 780 F.3d 728, 730 (7th Cir. 2017), the question addressed by the Rooker-Feldman doctrine is “what injury the plaintiff asks the federal court to redress, not whether the injury is ‘intertwined' with something else.” What JCI seeks to redress is the damage caused by the scheme to conceal asbestos exposure, not damage caused directly by the state court judgments. That the two are different can be seen from the fact that much of the damage claimed by Shein occurred before there were any state court judgments and would have occurred even had there been no judgments. JCI's principal claim is that the concealment of relevant information injured JCI by skewing its evaluation of its clients' potential liability and inflating the price of settlement. That injury is both antecedent to, and independent of, any judgments Shein obtained in the state court lawsuits. JCI's claim in this case, then, cannot have been “caused by” those judgments. See Brown v. Bowman, 668 F.3d 437, 442 (7th Cir. 2012) (“an independent prior injury that the state court failed to remedy” is not barred by Rooker-Feldman).

         In addition to the inflation of the cases' settlement value, JCI claims at least two additional injuries that were not caused by the state court judgments. First, it claims increased litigation costs, which would have been incurred regardless of the judgment entered in each case. Second, JCI claims it lost the opportunity to sue the concealed bankruptcy trusts for indemnification. See Pl.'s Resp. at 16-17. The costs of litigation can be, but are not always, losses independent of a state court's judgment. See Harold v. Steel, 773 F.3d 884, 886 (7th Cir. 2014). Violations of federal law during the course of the litigation may impose additional costs, as Harold also confirms. Id. at 886 (illustrating the point by noting that a violation of the Fair Debt Collection Practices Act by filing suit in an improper venue would have imposed an injury independent of the judgment by increasing litigation costs). That is the case here, where the alleged fraud made the litigation of the suit harder and more costly. The Court does not take JCI's argument to be that it should not have been subject to suit at all. Rather, JCI argues that Shein's misrepresentations caused it to incur additional costs in the litigation. These costs are not the inevitable consequence of the filing of the asbestos exposure suits, or the direct result of a court order, unlike attorney's fees. See Kelley v. Med-1 Solutions, LLC, 548 F.3d 600, 605 (7th Cir. 2008) (Rooker-Feldman bars second suit over misrepresentations made in order to gain court-ordered attorney's fees).

         The loss of independent indemnification claims is also clearly independent of the state court judgments. Nothing about the state court's judgments prohibited JCI from seeking indemnification, nor would any indemnification claims have in any way vacated the state court's judgments. See Taylor v. Fannie Mae, 374 F.3d 529, 533 (7th Cir. 2004) (Rooker-Feldman applies when claim would be “tantamount to a request to vacate the state court's judgment”). Although it arises from the same facts, the fact that JCI was held liable in state court does not cause the harm of being unable to seek indemnification due to Shein's misrepresentations.

         Because JCI's suit does not seek to invalidate the state court judgments, but to recover damages arising from an alleged scheme to defraud that was independent of those judgments, it does not fall within the narrow class of cases encompassed by the Rooker-Feldman ...

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