Philos Technologies, Inc. v. Philos & D Inc. et al

Filing 100

MEMORANDUM Opinion and Order Signed by the Honorable Milton I. Shadur on 5/22/2012:Mailed notice(srn, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PHILOS TECHNOLOGIES, INC.,
Plaintiff,
v.
PHILOS & D, Inc., et al.,
Defendants.

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No. 08 C 7240

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”),
(T. Mem. 2-3).1

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the plaintiff in this case

Philos Tech is affiliated with South Korean

Citations to plaintiff Philos Tech’s memorandum take the
form “T. Mem. --,” while citations to defendants’ memoranda take
the form “D. Mem. --” and “D. R. Mem. --.” Except where
otherwise noted in this opinion, the parties agree on the
relevant facts.

company PLS Tech Korea (“PLS”)(T. Mem. 6).2
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.

Don-

Hee and Jae-Hee first created Philos & D, Inc. (“Philos & D”), a
South Korean corporation (D. Mem. 3)--all three are now
codefendants in this case.
agreements with PLS:

Philos & D then entered into two

a joint venture agreement and a license

agreement (D. Mem. 3).
What happened next is disputed.

Philos Tech says that Jae-

Hee 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

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No party has explained just how Philos Tech is affiliated
with PLS, but that fact is irrelevant here.
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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 & D, Don-Hee and Jae-Hee in Illinois.

Philos Tech sued
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.

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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).
so here.

Not

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

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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
courts.

By deliberately ordering a machine to be manufactured

and shipped from Illinois, each of Don-Hee, Jae-Hee and Philos &
D would properly be subject to jurisdiction here.
But on the present record this Court cannot determine
whether Philos Tech actually played that claimed role of
manufacturer and seller of the machine.

According to defendants

Philos Tech was the seller to Philos & D of the product of the
actual South Korean manufacturer--PLS.

Defendants submitted an

affidavit from a PLS employee named Sunghyun Nam (“Nam”), who
claims to have assisted with the manufacture of the machine in
Korea.3

After assertedly manufacturing the machine in Korea, PLS

3

For its part, Philos Tech says that the PLS employee
originally gave like testimony in a Korean court proceeding and
then later recanted it. Philos Tech originally advanced the same
contention in a surreply that was never formally filed--Judge
Hibbler denied leave to file the memorandum. But this Court will
take account of it anyway, because the surreply merely provides
further factual support for the statements in Philos Tech’s
responsive memorandum.
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shipped it to Philos Tech to be relabeled so that Korean
authorities would think it had been manufactured in this country
(for the Korean tax benefit referred to earlier).

Jae-Hee

proposed the transaction with the Korean company, while Don-Hee
journeyed to Philos Tech’ facility only to pay a friendly visit.
Under that scenario Philos & D acquired the machine from
another Korean company, not from Illinois corporation Philos
Tech.

None of the defendants comes within this forum’s

jurisdiction if that version of the facts is correct.
One brief digression.

It will be recalled that Don-Hee and

Jae-Hee--by Philos Tech’s own admission--acted at all times as
Philos & D’s agents.

Alert readers may question whether this

District Court may exercise jurisdiction over such agents doing a
principal’s bidding.

There is a doctrine--the fiduciary shield

doctrine--“that denies personal jurisdiction over an individual
whose presence and activity in the state in which suit is brought
were solely on behalf of his employer or other principal”
(Rice v. Nova Biomed. Corp., 38 F.3d 909, 912 (7th Cir. 1994)).
Judge Ripple’s dissent in Steel Warehouse of Wis., Inc. v. Leach,
154 F.3d 712, 716 n.2 (7th Cir. 1998) has later explained that
many jurisdictions have repudiated the doctrine, and the United
States Supreme Court has cast doubt on its continued viability.
But the leading Illinois Supreme court decision, Rollins v.
Ellwood, 141 Ill.2d 244, 270, 565 N.E.2d 1302, 1314 (1990),

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expressly endorsed the fiduciary shield doctrine, and such recent
cases as Femal v. Square D Co., 388 Ill. App.3d 134, 139-40, 903
N.E.2d 32, 37-38 (1st Dist. 2009) have reconfirmed the doctrine’s
continued viability in Illinois.
But it is questionable whether Don-Hee and Jae-Hee can
invoke the fiduciary shield doctrine to defeat personal
jurisdiction.

There are two reasons for that.

First, Don-Hee

and Jae-Hee don’t mention that doctrine or any similar argument
in their brief.

Second, the doctrine contains an exception that

may well apply to Don-Hee and Jae-Hee (Femal, id. at 140, 903
N.E.2d at 38 (citations omitted)):
“[P]ersonal gain, discretionary actions, and
ownership of most of a corporations stock,”
all bear on the issue of whether a
defendant’s “conduct in Illinois was a
product of, and was motivated by, his
employment situation and not his personal
interests.” The court in Rollins expressly
held that a defendant’s personal interest in
his actions that lead to liability may make
the fiduciary shield doctrine inapplicable.
Here Don-Hee and Jae-Hee own most of Philos & D’s stock.
What is more, purchasing Philos Tech’s machine inured to their
personal benefit.

Philos & D (through Jae-Hee and Don-Hee) had

offered to issue additional equity in Philos & D in exchange for
Philos Tech’s machine.

For Don-He and Jae-Hee to be willing to

give up to Philos Tech a portion of their stake in Philos & D
shows that they had a strong personal interest in causing their

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company to purchase the Philos Tech machine.
This is not to say that the fiduciary shield doctrine would
absolutely not apply to Don-Hee and Jae-Hee.

But the doctrine

does not obviously apply here, and Don-Hee’s and Jae-Hee’s
forfeiture of the issue deprived this Court of full briefing on
the subject, foreclosing application of the doctrine.
So an evidentiary hearing is necessary to decide whether
this District Court may exercise personal jurisdiction over the
defendants.

Each party must present evidence that shows which

company--Philos Tech or PLS--negotiated the sale of the machine
manufactured the machine, and shipped the machine to Philos & D.
If it is possible and reasonable to do so, the parties might
consider arranging for Nam to testify in person so that this
Court may judge his credibility.4

Within two weeks of the date

of this order, each party should submit a list of possible dates
for the hearing.
________________________________________
Milton I. Shadur
Senior United States District Judge
Date:

May 22, 2012

4

This assumes that Nam is an English speaker. Attempting
to judge a speaker’s credibility through the filter of an
interpreter is necessarily more difficult because of the
obviously greater problems in evaluating the speaker’s tone of
voice, precise words used and other factors. Hence the parties
need not procure his appearance if an interpreter would be
required and they consider the marginal utility of speech over
the translated written word would not justify the added expense.

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