Doctors Oxygen Service Inc v. Cannon Management Group

Filing 32

ORDER signed by Judge J P Stadtmueller on 4/28/15: granting 22 Defendants' Motion to vacate the default judgment and dismiss the case for lack of personal jurisdiction; vacating 18 the Court's previous Order granting default judgment and 19 entry of default judgment; and, DISMISSING this action without prejudice. See Order. (cc: all counsel) (nm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
DOCTORS OXYGEN SERVICE INC.,
d/b/a MEDGAS SOLUTIONS
Plaintiff,

Case No. 14-CV-766-JPS

v.
CANNON MANAGEMENT GROUP, LLC,
and THOMAS R. CANNON,

ORDER

Defendants.
The plaintiff, which does business under the name Medgas Solutions
(hereinafter “Medgas”), filed this case on July 2, 2014. (Docket #1). Medgas
alleged that the defendants—Cannon Management Group, LLC, and
Thomas R. Cannon (hereinafter “the defendants”)1—accepted a construction
contact to perform work at the Jesse Brown V.A. Medical Center in Chicago,
Illinois. (Docket #1, ¶ 8). The defendants, in turn, entered into a subcontract
with Medgas. (Docket #1, ¶ 9). Under that subcontract, Medgas agreed to
install and provide various pieces of equipment; Medgas was to receive
$100,000.00 for performance of this work. (Docket #1, ¶¶ 11–12). Medgas
performed much of this work in Chicago at the V.A. center and requested
payment from the defendants. (Docket #1, ¶¶ 14, 18). The defendants,
however, never paid Medgas any of the money owing. (Docket #1, ¶¶ 16–17,
19).
Thus, Medgas filed this action, alleging breach of contract and theft by
contractor claims. (Docket #1, ¶¶ 20–29). Medgas served a copy of the

1

The original complaint did not name Cannon as an individual defendant.
Medgas named Cannon in its amended complaint. (Docket #10). This, however,
makes little difference to the Court’s discussion of the background of the case.

complaint upon the defendants. (Docket #4). After the defendants failed to
timely respond, Medgas requested entry of default. (Docket #6). The matter,
which had originally been assigned to a magistrate judge, was then
transferred to this Court for entry of default judgment. Upon receiving the
case, the Court immediately identified a pleading issue in Medgas’ complaint
and directed Medgas to file and serve an amended complaint. (Docket #8).
Medgas complied with both directives. (Docket #10, #11, #12). After the
defendants again failed to answer, Medgas moved for default judgment.
(Docket #13, #14, #15).
This time, the Court identified issues with Medgas’ damages request
and, thus, held the motion for default judgment in abeyance pending an
additional submission from Medgas. (Docket #16). Medgas submitted the
required additional materials on December 12, 2014.
Finally, the Court entered default judgment on December 17, 2014.
(Docket #18, #19). The Court awarded Medgas a total of $246,465.88. (Docket
#18, #19).
Obviously, that default judgment carried the salutary effect of
securing the defendants’ attention because on February 6, 2015, the
defendants appeared for the first time and moved to vacate entry of the
default judgment and dismiss the case for lack of personal jurisdiction.
(Docket #22). That motion is fully briefed and now before the Court for
decision. (Docket #23, #26, #30).
1.

STANDARD OF REVIEW
“When a district court enters a default judgment without personal

jurisdiction over the defendant, ‘the judgment is void and it is a per se abuse
of discretion to deny a motion to vacate that judgment.’” be2 LLC v. Ivanov,
642 F.3d 555, 557–58 (7th Cir. 2011) (quoting Relational, LLC v. Hodges, 627
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F.3d 668, 671 (7th Cir. 2010); citing Jenkins & Gilchrist v. Groia & Co., 542 F.3d
114, 118 (5th Cir. 2008); Blaney v. West, 209 F.3d 1027, 1031 (7th Cir. 2000);
United States v. Indoor Cultivation Equipment from High Tech Indoor Garden
Supply, 55 F.3d 1311, 1316–17 (7th Cir. 1995)). Thus, in this case, the Court
must vacate its judgment if it does not have personal jurisdiction over the
defendants.
The Court, sitting in Wisconsin, may exercise personal jurisdiction
over the defendants “only if authorized both by [Wisconsin] law and the
United States constitution.” be2 LLC, 642 F.3d at 558 (citing Fed. R. Civ. P.
4(k)(1)(A); Tamburo v. Dworkin, 601 F.3d 693, 700 (7th Cir. 2010)). This is
technically a two-part analysis: the Court must determine whether
Wisconsin’s state courts would have jurisdiction under the state’s long-arm
statute, Wis. Stat. § 801.05, and whether personal jurisdiction would comport
with principles of due process. See Purdue Res. Found. v. Sanofi-Synthelabo,
S.A., 338 F.3d 773, 782 (7th Cir. 2003). But Wisconsin’s long-arm statute is
liberally construed in favor of conferring jurisdiction to the maximum extent
allowable under principles of due process. See, e.g., Felland v. Clifton, 682 F.3d
665, 672 (7th Cir. 2012); Kopke v. A. Hartrodt S.R.L., 2001 WL 99, ¶ 10, 245 Wis.
2d 396, 629 N.W.2d 662; Fabio v. Diversified Consultants, Inc., No. 13-CV-524,
2014 WL 713104 at *2 (W.D. Wis. Feb. 25, 2014). So the Court can easily
collapse the personal jurisdiction issue into one question: whether personal
jurisdiction over the defendants comports with principles of due process.
The exercise of personal jurisdiction comports with principles of due
process when one of two separate jurisdictional standards is satisfied: specific
jurisdiction or general jurisdiction. See, e.g., Daimler AG v. Bauman, --- U.S. ----,
134 S.Ct. 746, 754 (2014); Goodyear Dunlop Tires Operations, S.A. v. Brown, 564
U.S. ----, 131 S.Ct. 2846 (2011) (citing Helicopteros Nacionales de Colombia, S.A.
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v. Hall, 466 U.S. 408, 414, ns. 8, 9 (1984)). In this case, Medgas does not argue
that the general jurisdiction standard is satisfied, so the Court focuses on
specific jurisdiction.
In International Shoe, the Supreme Court set forth the framework of
specific jurisdiction. See Daimler AG, 134 S.Ct. at 754 (describing specific
jurisdiction as being “represented by International Shoe itself”) (citing Int’l
Shoe Co. v. Washington, 326 U.S. 310, 317 (1945)). In International Shoe, “the instate activities of the…defendant ‘ha[d] not only been continuous and
systematic, but also g[a]ve rise to the liabilities sued on.’” Daimler AG, 134
S.Ct. at 754 (quoting Int’l Shoe, 326 U.S. at 317). International Shoe also noted
that “‘the commission of some single or occasional acts of the corporate agent
in a state’ may sometimes be enough to subject the corporation to jurisdiction
in that State’s tribunals with respect to suits relating to that in-state activity.”
Daimler AG, 134 S.Ct. at 754 (quoting Int’l Shoe, 326 U.S. at 318). In other
words, to comply with International Shoe’s conception of “fair play and
substantial justice,” the suit must “aris[e] out of or relate[] to the defendant’s
contacts with the forum.” Helicopteros, 466 U.S. at 414, n.8 (citing Von Mehren
& Trautman, Jurisdiction to Adjudicate: A Suggested Analysis, 79 HARV . L. REV .
1121, 1144–64 (1966)).
Importantly, not all contacts with a forum state weigh in favor of
specific jurisdiction; rather,
[t]he relevant contacts are those that center on the relations
among the defendant, the forum, and the litigation. Crucially,
not just any contacts will do: “For a State to exercise
jurisdiction consistent with due process, the defendant’s
suit-related conduct must create a substantial connection with
the forum State.” The “mere fact that [defendant’s] conduct
affected plaintiffs with connections to the forum State does not
suffice to authorize jurisdiction.” Furthermore, the relation
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between the defendant and the forum “must arise out of
contacts that the defendant himself’ creates with the forum....”
Contacts between the plaintiff or other third parties and the
forum do not satisfy this requirement.
Advanced Tactical Ordnance Sys., LLC v. Real Action Paintball, Inc., 751 F.3d 796,
801 (7th Cir. 2014), as corrected (May 12, 2014) (quoting Walden v. Fiore, --- U.S.
----, 134 S.Ct. 1115 (2014); citing Int’l Shoe, 326 U.S. 310; Keeton v. Hustler Mag.,
Inc., 465 U.S. 770, 775 (1984); Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475
(1985)). The Court must remember that the “‘minimum contacts’ analysis
looks to the defendant’s contacts with the forum state itself, not the
defendant’s contacts with persons who reside there.” Walden, 134 S.Ct. at
1123 (quoting Int’l Shoe, 326 U.S. at 319). The “mere fact that [a defendant’s]
conduct affected plaintiffs with connections to the forum State does not
suffice to authorize jurisdiction.” Walden, 134 S.Ct. at 1126.
In Felland, the Seventh Circuit distilled the specific jurisdiction inquiry
into a three-part test, requiring: “(1) the defendant must have purposefully
availed himself of the privilege of conducting business in the forum state or
purposefully directed his activities at the state; (2) the alleged injury must
have arisen from the defendant’s forum-related activities; and (3) the exercise
of jurisdiction must comport with traditional notions of fair play and
substantial justice.” 682 F.3d at 673 (citing Burger King, 471 U.S. at 472; Int’l
Shoe, 326 U.S. at 316; Tamburo, 601 F.3d at 702; Purdue, 338 F.3d at 780–81). As
to the first of those parts, the Seventh Circuit clarified that the nature of the
plaintiff’s claim is extremely important to determining purposeful availment:
We note at the outset that the nature of the purposefuldirection/purposeful-availment inquiry depends in large part
on the type of claim at issue. For example, personal jurisdiction
in a breach-of-contract suit generally turns on whether the
defendant purposefully availed himself of the privilege of
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conducting business in the forum state. So if Felland had
brought only a breach-of-contract claim, the analysis would
likely be limited to Clifton’s conduct during contract formation
in Mexico. Clifton never advertised in Wisconsin, nor did he or
any of his associates conduct any actual business there, so the
exercise of personal jurisdiction would probably not be
appropriate had Felland brought only a breach-of-contract
claim.
Felland, 682 F.3d at 674 (citing Tamburo, 601 F.3d at 702; RAR, Inc. v. Turner
Diesel, Ltd., 107 F.3d 1272, 1278 (7th Cir. 1997) (“[I]n a breach of contract case,
it is only the ‘dealings between the parties in regard to the disputed contract’
that are relevant to minimum contacts analysis.”); Dudnikov v. Chalk &
Vermilion Fine Arts, Inc., 514 F.3d 1063, 1071 (10th Cir. 2008); Vetrotex
Certainteed Corp. v. Consol. Fiber Glass Prods. Co., 75 F.3d 147, 153 (3d Cir.
1996)). It is only when a defendant “purposefully direct[s] activities at the
forum state or purposefully avail[s] himself of the privilege of conducting
business in the state,” that the defendant can be required to litigate in the
forum. N. Grain Mktg., LLC v. Greving, 743 F.3d 487, 492 (7th Cir. 2014).
Because the parties wish to proceed on their written submissions (and
because there do not appear to be any disagreements over the facts), an
evidentiary hearing is unnecessary. See Kipp v. Ski Enterprise Corp. of
Wisconsin, Inc., No. 14-2527, slip op. at 3 (7th Cir. Apr. 15, 2015). Because the
defendants defaulted, they bear the burden of proving that the Court lacks
jurisdiction. Philos Techs., Inc. v. Philos & D, Inc., 645 F.3d 851, 857 (7th Cir.
2011) (citing Bally Export Corp. v. Balicar, Ltd., 804 F.2d 398, 401 (7th Cir.
1986)). This contrasts with the general rule that, where the defendant
challenges personal jurisdiction and the parties proceed on their written
submissions, “the plaintiff must establish merely a prima facie case of personal
jurisdiction.” Kipp v. Ski Enterprise Corp. of Wisconsin, Inc., No. 14-2527, slip
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op. (7th Cir. Apr. 15, 2015) (citing Purdue, 338 F.3d at 782). Under either
formulation—even with the defendants bearing the burden—the defendants
prevail.
2.

ANALYSIS
Medgas argues that this Court may exercise specific jurisdiction over

the defendants in Wisconsin because of the defendants’ contacts: (1) the
defendants solicited Medgas, which is located in Wisconsin, via email and
phone to perform the work in question (see Docket #27, ¶ 3); (2) while
ultimately the work was performed in Illinois, Medgas prepared in Wisconsin
(see Docket #27, ¶ 5); and, (3) the defendants continued to contact Medgas in
Wisconsin by email and phone during the preparation and performance
period (see Docket #27, ¶¶ 4, 6). The Court will accept these representations
as true. See Felland, 682 F.3d at 672 (citing Purdue, 338 F.3d at 782).
Meanwhile, Medgas has asserted two basic claims: breach of contract and
theft by contractor. (See Docket #10, ¶¶ 21–33).
In light of the legal authority cited above, the Court must ask whether
the defendants’ contacts constitute in-state activity related to the Medgas’
claims. See Daimler AG, 134 S.Ct. at 754 (quoting Int’l Shoe, 326 U.S. at 318);
Felland, 682 F.3d at 674. They do not.
2.1

Purposeful Availment

None of the defendants’ contacts satisfy the first prong of Felland,
purposeful availment.
As to the first group of alleged contacts, nothing about the solicitation
or formation of the contract establishes purposeful availment. Certainly, the
contract, alone, is not enough to support personal jurisdiction. Burger King,
471 U.S. at 478 (“If the question is whether an individual’s contract with an
out-of-state party alone can automatically establish sufficient minimum
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contacts in the other party’s home forum, we believe the answer clearly is
that it cannot.”). And, even though the defendants knew that Medgas was
based in Wisconsin and solicited their business, that is not sufficient to
establish specific jurisdiction.2 See Darwin Chambers Co., L.L.C. v. Bennington
Coll. Corp., No. 14-CV-1925, 2015 WL 1475009, at *8–*9 (E.D. Mo. Mar. 31,
2015) (“Assuming that Bennington solicited the parties’ agreement knowing
that Darwin was a Missouri corporation, ‘that knowledge cannot create
minimum contacts with [Missouri] because the plaintiff cannot be the only
link between the defendant and the forum.’”) (internal quote of Walden
omitted) (quoting Fastpath, Inc. v. Arbela Techs. Corp., 760 F.3d 816 (8th Cir.
2014); Walden, 134 S.Ct. at 1125); Nimbus Data Sys., Inc. v. Modus LLC, No.
14-CV-4192, 2014 WL 7387200, at *5 (N.D. Cal. Dec. 29, 2014) (“the fact that
a defendant has solicited a contract and communicated with the plaintiff in
the forum state by email and telephone is also insufficient to establish
purposeful availment”) (citing Azzarello v. Navagility, LLC, No. 08–CV–2371,
2008 WL 4614667, at *3–*5 (N.D.Cal. Oct. 16, 2008); Evergreen Media Holdings,
LLC v. Safran Co., No. CIV.A. H-14-1634, 2014 WL 7272292, at *13 (S.D. Tex.
Dec. 18, 2014) (citing Colwell Realty Investments, Inc. v. Triple T Inns of Arizona,
Inc., 785 F.2d 1330, 1334 (5th Cir.1986); Stuart v. Spademan, 772 F.2d 1185,
1192–93 (5th Cir. 1985)). The same is true of communications between the
parties. Darwin Chambers, 2015 WL 1475009, at *8–*9 (citing Dairy Farmers of
America, Inc. v. Bassett & Walker Inter., Inc., 702 F.3d 472, 478 (8th Cir. 2012));

2

Medgas cites Madison Consulting Group v. State of S.C., 752 F.3d 1193, 1203
(7th Cir. 1985) for the proposition that active solicitation establishes sufficient
contacts. But the defendant’s solicitation efforts in Madison Consulting were more
active, involving inducing the plaintiff to travel to the defendant’s state at plaintiff’s
expense. Id. Moreover, Madison Consulting was decided before Walden and Burger
King.

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Nimbus, 2014 WL 7387200, at *5 (citing Azzarello, 2008 WL4614667, at *3);
Evergreen, 2014 WL 7272292, at *13 (citing Holt Oil & Gas Corp. v. Harvey, 801
F.2d 773, 778 (5th Cir. 1986)). The formation of the contract, itself, does not
appear to have occurred in Wisconsin. Indeed, it appears that the defendants
actually signed the contract in Chicago. (Docket #27, Ex. 2 at 14–15 (February
7, 2013, revised contract was mailed to defendants in Chicago and included
an acceptance line for signature)). And the contract does not call for any
work to be done in Wisconsin. Thus, under Burger King, there does not
appear to be any purposeful availment on the basis of the contract. E.g.
Boschetto v. Hansing, 539 F.3d 1011, 1017 (9th Cir. 2008) (in determining
personal availment, courts should look to ongoing obligations or
commitments with the forum that were created by the contract) (citing Burger
King, 471 U.S. at 478).
As to the second group of contacts, the fact that Medgas performed
preparatory work in Wisconsin was purely unilateral on Medgas’ part and
does not affect the contacts analysis.3 E.g. Walden, 134 S.Ct. at 1122–23.
Finally, as to the third group of contacts, any ongoing communications
and dealings between the defendants and Medgas were extremely limited.
The fact that the defendants contacted Medgas in Wisconsin is purely a
function of Medgas’ location there; this does not establish contacts with the
forum state, itself. Walden, 134 S.Ct. at 1122 (citing Int’l Shoe, 326 U.S. at 319;
Hanson, 357 U.S. at 251). Accord Advanced Tactical, 751 F.3d at 801 (quoting
Walden, 134 S.Ct. at 1122). Additionally, it appears that the defendants were

3

This also distinguishes the case from Citadel Group Ltd v. Washington
Regional Med. Ctr., 536 F.3d 757, 761 (7th Cir. 2008), in which the preparatory work
was a focus of the contract.

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called upon to sign any change forms from their location in Illinois. (Docket
#27, Ex. 4 (change forms all lack signature from defendants’ representative)).
Thus, put as simply as possible, while the defendants might have had
some limited interaction with Medgas while Medgas was in Wisconsin, there
is no indication that the defendants ever availed themselves of conducting
business in Wisconsin. The Court may look to “‘prior negotiations and
contemplated future consequences, along with the terms of the contract and
the parties’ actual course of dealing’ in determining whether there were
sufficient minimum contacts.” Citadel Group, 536 F.3d at 761 (quoting Burger
King, 741 U.S. at 479). In this case, the prior negotiations were very
limited—with the defendants participating practically entirely from
Illinois—and the subject of the contract was to occur in Illinois.
2.2

Injury Arising Out of Relevant Contacts

The Court’s rejection of Medgas’ purposeful availment argument is
sufficient to dismiss this case for lack of personal jurisdiction. See Felland, 682
F.3d at 673 (listing three-part jurisdiction test in conjunctive). However, the
Court is mindful of the fact that the Supreme Court has been refining its
personal jurisdiction jurisprudence within the last few years. See, e.g., Walden,
134 S.Ct. 1115; Daimler AG, 134 S.Ct. 746; Goodyear, 131 S.Ct. 2846. In light of
those recent developments, the Seventh Circuit has had limited opportunity
to apply the recent law. Thus, the Court finds it wise to analyze the
remaining Felland requirements, if for no other reason than to confirm the
necessity of dismissing this case.
The second Felland requirement—that the injury arises out of the
relevant contacts—likely is not satisfied. Felland did not establish a firm test
for making this determination. 682 F.3d at 676–77. Felland described three
possibilities: “the circuits disagree about whether the defendant’s contacts
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must have been the factual cause of the plaintiff’s injury, the factual and
proximate cause, or perhaps some intermediate standard between the two.”
Id. at 676 (citing Tamburo, 601 F.3d at 708–09; Dudnikov, 514 F.3d at 1078).
Under any formulation, it cannot be said that Medgas’ injury arises out of the
parties’ limited communications. Certainly, this is not a case like Felland, in
which the communications at issue formed the basis for the claim. 682 F.3d
at 677. Finally, while perhaps in some broad sense the formation of the
contract “caused” Medgas’ injuries, the Seventh Circuit has “suggested in
passing that a mere ‘but for’ causal relationship is insufficient to establish the
required nexus between a defendant’s contacts and the underlying cause of
action,” though it has not definitively resolved the question. Id. at 676–77
(citing GCIU-Emp’r Ret. Fund v. Goldfarb Corp., 565 F.3d 1018, 1025 (7th Cir.
2009); O’Connor v. Sandy Lane Hotel Co., 496 F.3d 312, 322 (3d Cir. 2007);
Tamburo, 601 F.3d at 709). At most, Medgas has alleged “but for” causation
(Docket #26 at 8), which does not seem to satisfy Felland’s arising-from
requirement, Felland, 682 F.3d at 676–77.
2.3

Traditional Notions of Fair Play and Substantial Justice

The third Felland requirement—that the Court’s exercise of jurisdiction
comport with traditional notions of fair play and substantial justice—also is
not satisfied. Multiple factors are relevant to “this determination: ‘the burden
on the defendant, the forum State’s interest in adjudicating the dispute, the
plaintiff’s interest in obtaining convenient and effective relief, the interstate
judicial system’s interest in obtaining the most efficient resolution of
controversies, and the shared interest of the several States in furthering
fundamental substantive social policies.’” Felland, 682 F.3d at 677 (quoting
Burger King, 471 U.S. at 477). In this case, the defendants’ relation to
Wisconsin is extremely limited. Meanwhile, the subject of the contract and
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a majority of the work occurred in Illinois. And, for that reason, many of the
potential witnesses are likely located in Illinois (with the exception, of course,
of Medgas’ own witnesses). Given the much more significant relation to
Illinois, it seems clear that the case can be resolved most efficiently in Illinois.
Illinois courts also would have a stronger interest in adjudicating the case, as
the substantive work in question was performed in Illinois. And, on balance,
Wisconsin has a much lower interest in adjudicating the dispute. For all of
these reasons, the Court finds that the third Felland requirement weighs
against exercise of specific jurisdiction over the defendants.
3.

CONCLUSION
The Court having found that each of the Felland requirements weighs

against exercise of personal jurisdiction, the Court will grant the defendants’
motion (Docket #22), vacating the Court’s previous entry of default judgment
and dismissing this action without prejudice for lack of personal jurisdiction.
The defendants did not request transfer of venue (Docket #22), but, even if
they had, the Court would not transfer this case. In this case, dismissal
without prejudice is the wisest approach. One of the disputes between the
parties revolves around a condition precedent to suit: mediation. The
dismissal of the suit will allow the parties to consider reaching an agreement
regarding this issue without a pending case hanging over their discussions.
If they agree that the condition precedent is, indeed, required and has not
been satisfied, then they can immediately engage in mediation, after which
they can file a suit if necessary. (Whereas, if the Court transferred
jurisdiction, the question would require resolution by the new court, which
would potentially have to stay or dismiss the case, itself.) If the parties cannot
agree, then Medgas can simply refile the case in the proper venue, whereafter
the parties can engage in their dispute regarding the condition precedent.
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The Court’s approach—essentially wiping the slate clean—should protect
Medgas’ ability to seek relief while simultaneously reducing confusion for
the parties and courts involved.
Accordingly,
IT IS ORDERED that the defendants’ motion to vacate the default
judgment and dismiss the case for lack of personal jurisdiction (Docket #22)
be and the same is hereby GRANTED. Pursuant to Rule 12(b)(2) of the
Federal Rules of Civil Procedure and the Court’s lack of personal jurisdiction
over the defendants, the Court’s previous order granting default judgment
(Docket #18) and entry of default judgment (Docket #19) be and the same are
hereby VACATED, and this matter be and the same is hereby DISMISSED
without prejudice.
The Clerk of the Court is directed to enter judgment accordingly.
Dated at Milwaukee, Wisconsin, this 28th day of April, 2015.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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