Titan Wheel Corporation of Illinois v. McDonald Steel Corporation

Filing 34

OPINION: Third-Party Defendant Hamilton Specialty Bar (2007), Inc.'s motion to dismiss for lack of personal jurisdiction 27 is ALLOWED. The Clerk will terminate Hamilton Specialty Bar (2007), Inc. as a party. SEE WRITTEN OPINION. Entered by Judge Richard Mills on 04/09/2019. (SKN, ilcd)

E-FILED

Tuesday, 09 April, 2019 01:09:27 PM
Clerk, U.S. District Court, ILCD

IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION

TITAN WHEEL CORPORATION OF
ILLINOIS,
Plaintiff,
v.
MCDONALD STEEL CORPORATION,
Defendant/Third Party Plaintiff,
v.
HAMILTON SPECIALTY BAR (2007),
INC.,
Third-Party Defendant.

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Case No. 17-3141

OPINION
RICHARD MILLS, United States District Judge:
This case poses a fundamental question of jurisdiction.
Pending is the motion to dismiss of Third-Party Defendant Hamilton
Specialty Bar (2007), Inc.
I.

BACKGROUND

Third-Party Defendant Hamilton Specialty Bar (“Hamilton”) seeks an Order
dismissing Defendant/Third-Party Plaintiff McDonald Steel Corporation’s
(“McDonald”) Third-Party Complaint for lack of personal jurisdiction.
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On June 12, 2017, Plaintiff Titan Wheel Corporation of Illinois (“Titan”) filed
its Complaint against McDonald alleging claims for breach of contract, breach of
express warranty, breach of implied warranty of fitness, breach of implied warranty
of merchantability and negligence. The claims arise out of those parties’ contractual
relationship in which McDonald supplied steel to Titan for the purposes of
manufacturing wheel and tire assemblies. Titan claimed damages in excess of
$4,000,000, due to an alleged anomaly in the steel parts supplied to it by McDonald.
On August 11, 2017, McDonald filed a Third-Party Complaint against
Hamilton, alleging counts for breach of contract, breach of express warranty, breach
of implied warranty of fitness, breach of implied warranty of merchantability,
statutory contribution and implied indemnity. McDonald purchased steel billets
from Hamilton pursuant to a contract. McDonald alleges that the steel supplied to it
by Hamilton was defected and resulted in the anomaly complained of in Titan’s
Complaint.
Per the contract, the product was made and sold by Hamilton at its plant in
Hamilton, Ontario, Canada and was shipped to its customer McDonald in
McDonald, Ohio. The contract includes a choice of law provision, which focuses
solely on the laws of Hamilton’s and McDonald’s nations of incorporation or places
of business, which does not include Illinois law.

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McDonald is incorporated in the State of Ohio with its principal place of
business located at 100 Ohio Avenue, McDonald, Ohio.
Hamilton is a Canadian Corporation. It was incorporated under the Province
of New Brunswick’s Business Corporation Act of 2007. Its principal place of
business is located in Hamilton, Ontario, Canada. Hamilton maintained a single
manufacturing plant located in Hamilton, Ontario.
Hamilton claims it does not market or advertise in the State of Illinois and has
no physical presence in Illinois. Hamilton has only one or two customers in Illinois.
During the Canada bankruptcy proceedings, a statement detailed $131,836,438.04
total deficiencies. Less than 1% of the total number of Hamilton’s unsecured
creditors are located in Illinois. There are 302 unsecured creditors listed on “List
A,” only three of which are located in Illinois. Hamilton’s unsecured debt from
Illinois creditors totals a mere $71,130.29 out of almost $132 million, or about one
half of one percent. None of those creditors are involved in this case.
On January 29, 2018, Hamilton filed a Notice of Bankruptcy, notifying the
Court of the order automatically staying all proceedings in Canada on January 29,
2018. On February 7, 2018, this Court stayed all proceedings against Hamilton.
McDonald filed a motion to lift the automatic bankruptcy stay in the Canadian
Court to the extent of insurance. The motion was granted. On June 29, 2018, the

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Court granted the motions of Titan and McDonald to lift the bankruptcy stay to the
extent of insurance based on the Canadian Court’s order.
II.

DISCUSSION

A. Legal standard
In considering a motion to dismiss under Rule 12(b)(2), the Court accepts the
Plaintiff’s allegations concerning personal jurisdiction unless the allegations are
refuted through undisputed affidavits. See Swanson v. City of Hammond, 411 F.
App’x 913, 915 (7th Cir. 2011). Once a defendant challenges personal jurisdiction
via a motion to dismiss under Rule 12(b)(2), the plaintiff bears the burden of proving
it exists. See Purdue Research Foundation v. Sanofi-Synthelabo, S.A., 338 F.3d 773,
782 (7th Cir. 2003).
B. Consent
McDonald alleges Hamilton, by and through its Trustee and insurer,
consented to McDonald’s claim against Hamilton in this Court. Specifically, the
bankruptcy Trustee to whom Hamilton’s assets and properties were assigned and
Chubb (Hamilton’s insurer) did not oppose the motion to lift automatic stay in the
Canadian court and consented to the Canadian court’s order lifting the bankruptcy
stay “for the sole purpose of allowing McDonald Steel Corporation to establish
liability, so that it may pursue its claim against Hamilton Specialty Bar’s insurance
proceeds and/or insurer(s) and for no other purpose in respect to the action
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commenced by Titan Wheel Corporation of Illinois against McDonald Steel
Corporation against Hamilton Specialty Bar (2007) Inc. in the United States District
Court for the Central District of Illinois being case number 3:17-cv-03141-RMTSH.”
Hamilton states it simply took no position on McDonald’s motion to lift stay.
It claims, however, that does not equate to consenting to personal jurisdiction in the
State of Illinois. The Court agrees. Hamilton never waived the defense of lack of
personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(h)(1), by filing
a motion or responsive pleading and failing to raise a jurisdictional defense.
Additionally, a defendant can remove a case to federal court and then move to
dismiss for lack of jurisdiction. See Damasco v. Clearwire Corp., 10 CV 3062, 2010
WL 3522950, at *4 (N.D. Ill. Sept. 2, 2010), aff’d, 662 F.3d 891 (7th Cir. 2011). If
a party does not waive that defense by taking the affirmative step of removing the
case, it follows that a party does not consent to jurisdiction by not opposing a motion
to lift stay to allow another party to proceed in its efforts to establish liability.
Accordingly, the Court concludes Hamilton did not consent to jurisdiction.
C. Affidavit of Attorney Shannon M. Harvey
McDonald alleges that Hamilton’s motion to dismiss has no support given that
it relies upon an improper Affidavit of Attorney Shannon M. Harvey. The Court
earlier noted that the affidavit for the most part is not based on personal knowledge
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and contains hearsay statements and speculation about what other individuals knew
or believed. Ms. Harvey states that she spoke last year with the Chief Financial
Officer of Hamilton, Fred Burke, and its Chief Executive Officer, Gus Hiller, with
the intention of preparing an affidavit for Mr. Burke’s or Mr. Hiller’s execution. In
March 2018, the Ontario Superior Court of Justice appointed a receiver over HSB
and directed the receiver to assign Hamilton into bankruptcy.

Hamilton was

completely liquidated and dissolved. Burke, Hiller and all other employees lost their
jobs. Despite a good faith effort, Ms. Harvey states she not been able to locate Burke
or Hiller and thus has not been able to obtain their executed affidavits.
Given those extenuating circumstances, the Court declined to strike the
affidavit. The Court noted that, in considering Hamilton’s motion to dismiss, the
Court will determine what weight, if any, to give to the affidavit. Accordingly, the
Court denied McDonald’s motion to strike the affidavit.
D. Personal jurisdiction
Personal jurisdiction over a defendant can be established either through
specific or general jurisdiction. See Brook v. McCormley, 873 F.3d 549, 552 (7th
Cir. 2017). General jurisdiction concerns a defendant’s “continuous and systematic”
contacts with a state, whether or not the action is related to the contacts. See id. “A
court may assert general jurisdiction over foreign (sister-state or foreign-country)
corporations to hear any and all claims against them when their affiliations with the
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State are so ‘continuous and systematic’ as to render them essentially at home in the
forum State.” Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919
(2011). “Specific jurisdiction refers to jurisdiction over a defendant in a suit arising
out of or related to the defendant’s contacts with the forum.” Brook, 873 F.3d at 552
(internal quotation marks omitted).
Given the extremely high threshold for general jurisdiction and based on the
allegations in this case, the only potential type of jurisdiction over Hamilton would
be specific jurisdiction.
“Because Illinois permits personal jurisdiction if it would be authorized by
either the Illinois Constitution or the United States Constitution, the state statutory
and federal constitutional requirements merge.” uBid, Inc. v. GoDaddy Group, Inc.,
623 F.3d 421, 425 (7th Cir. 2010). Under the Constitution, the inquiry is whether it
is “fair and reasonable” to require the nonresident defendant to answer the plaintiff’s
claim; he must have contacts or ties with the state “such that maintenance of the suit
does not offend traditional notions of fair play and substantial justice.” International
Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (internal quotation marks
omitted). A defendant must purposefully avail itself of the privilege of conducting
activities within a state, thereby invoking the protection of its laws. See Burger King
Co. v. Rudzewicz, 471 U.S. 462, 474-75 (1985). The contacts must create a
“substantial connection” with the state and not be the result of “random,”
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“fortuitous” or “attenuated” contacts. Id. Thus, the litigation must result from
alleged injuries that arise out of forum-related activities. See id. at 472.
The plaintiff cannot be the sole link between a defendant and the forum. See
Walden v. Fiore, 571 U.S. 277, 285 (2014). While “a defendant’s contacts with the
forum State may be intertwined with his transactions or interactions with the plaintiff
or other parties,” his “relationship with a plaintiff or third party, standing alone, is
an insufficient basis for jurisdiction.” Id. at 286.
Hamilton claims it is not subject to specific jurisdiction because it did not
purposefully conduct business in Illinois with respect to the events in this case.
Hamilton shipped a commodity product from its plant in Canada to McDonald’s
facility in McDonald, Ohio. It had no knowledge McDonald would use its raw
materials to sell a product to an Illinois customer. Hamilton had no distribution
scheme involving Illinois. Hamilton had no knowledge that McDonald intended to
sell products containing the steel billets to Titan, an Illinois corporation, nor did
Hamilton stand in a position to dictate or direct the sales. After shipping the steel
billets to McDonald in Ohio, Hamilton was not privy to or in control of in what
capacity the steel billets would be used or where they would be transferred thereafter.
Accordingly, Hamilton did not purposefully direct its “suit-related conduct” to
Illinois or “purposefully avail” itself of the privilege of conducting business in
Illinois.
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In determining whether a claim “relates to or arises out of a party’s contacts,”
a court does not simply add up all of the contacts. See GCIU-Employer Retirement
Fund v. Goldfarb Corp., 565 F.3d 1018, 1024 (7th Cir. 2009). “[T]o be relevant for
personal jurisdiction, past contacts should either bear on the substantive legal dispute
between the parties or relate to the operative facts of the case.” Id. Accordingly, a
plaintiff’s cause of action “must directly arise out of the specific contacts between
the defendant and the forum state.” Id. (emphasis in original).
Hamilton notes that McDonald, in its Third-Party Complaint, alleges
Hamilton is “doing business in the state of Illinois, including but not limited to,
selling, shipping, and delivering good, including steel billets, in the State of Illinois,
as well as, upon information and belief, advertising its good and services to entities
in Illinois.” Doc. No. 5, ¶ 2. Hamilton asserts these allegations are insufficient to
withstand Hamilton’s motion. There was no contract or customer relationship
between Hamilton and McDonald that touched on the State of Illinois. Because the
injury complained of by McDonald did not arise out of Hamilton’s connections to
Illinois, Hamilton contends specific personal jurisdiction cannot be established.
McDonald claims there is no burden on Hamilton to litigate this case in
Illinois. Its claim is limited to Hamilton’s insurance proceeds and/or insurer, and for
no other purpose. Moreover, Hamilton has acknowledged that it actually conducted
business in Illinois and, in fact, had a salesperson who lived and worked in Illinois.
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McDonald contends that Hamilton sold its product--steel billets--to McDonald with
the knowledge that its product would be distributed throughout the United States,
including Illinois.
Citing Calder v. Jones, 465 U.S. 783 (1984), McDonald claims that for tort
claims, the state in which the injury or damage occurs is then considered to be the
state in which the tort occurred. See id. at 790. Tortfeasors should expect to be haled
into Illinois courts if the injury occurred there. Calder involved a reporter and editor
who wrote and edited an article that they knew would have a potentially devastating
effect on the subject. See id. at 789. They knew the injury would be primarily felt
in the State in which the subject lived and worked. See id. at 790. However, Calder
differs significantly from this case because Hamilton could not have known that
McDonald would use Hamilton’s raw materials to sell its product to an Illinois
customer. “[A]s a general rule, it is not enough that the defendant might have
predicted that its goods will reach the forum State.” J. McIntyre Machinery, Ltd. v.
Nicastro, 564 U.S. 873, 882 (2011).
The Court is unable to conclude that the presence of a single employee who
has no apparent relationship to the claims here is enough to establish jurisdiction in
Illinois. In Palmer v. Kawaguchi Iron Works, Ltd., 644 F. Supp. 327 (N.D. Ill. 1986),
the district court determined that the presence of one Illinois employee who did not

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contribute to the alleged injury was not enough to confer jurisdiction in Illinois over
a non-resident Japanese corporation. See id. at 331.
According to the bankruptcy documents, less than 1% of the total number of
unsecured creditors at the time of Hamilton’s bankruptcy were located in Illinois.
The three customers present in Illinois represent about one-half of one percent of
Hamilton’s unsecured debt at the time of the bankruptcy and are not related to this
litigation.
It is apparent even without giving significant weight to Ms. Harvey’s affidavit
that Hamilton’s contacts with Illinois are extremely limited and not continuous and
systematic. These limited contacts are not suit-related. Moreover, Hamilton could
not have foreseen that its commodity product would end up in the State of Illinois
through the independent action of McDonald. There was no basis to suspect the
steel billets would eventually be shipped to Illinois as opposed to another state. After
selling the steel billets to McDonald in the State of Ohio pursuant to their contract,
Hamilton had no knowledge or control over the product after its delivery. There was
no purposeful availment of the privilege of conducting business in Illinois.
The Court concludes that it does not have general or specific jurisdiction over
Hamilton.
Ergo, Third-Party Defendant Hamilton Specialty Bar (2007), Inc.’s motion to
dismiss for lack of personal jurisdiction [d/e 27] is ALLOWED.
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The Clerk will terminate Hamilton Specialty Bar (2007), Inc. as a party.
ENTER: April 9, 2019
FOR THE COURT:

/s/ Richard Mills
Richard Mills
United States District Judge

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