SIXTH DIVISION May 26, 2006
Nos. 1-04-2609 and 1-04-2736 (consolidated)
HELEN M. SAIA, Individually, and as ) Appeal from the Special Administrator of the Estate of ) Circuit Court of Alexis K. Saia, a Deceased Minor, ) Cook County ) Plaintiff-Appellant, ) ) v. ) ) SCRIPTO-TOKAI CORPORATION, a California ) Corporation, K MART CORPORATION, a ) Michigan Corporation, and PARTNERSHIP ) CONCEPTS REALTY MANAGEMENT, INC., an ) Illinois Corporation, ) ) Defendants, ) ) and ) ) TOKAI CORPORATION, a Japanese ) Corporation, ) Honorable ) Michael J. Hogan, Defendant-Appellee. ) Judge Presiding
PRESIDING JUSTICE McNULTY delivered the opinion of the
court:
Tokai, a Japanese corporation, designed a lighter and gave
its subsidiary, Scripto-Tokai (Scripto), exclusive right to
distribute the lighter in the United States. Helen Saia, a
consumer who bought one of the lighters in Illinois, claims, in
this lawsuit, that Tokai designed the lighter negligently and the
design caused the death of her child. Scripto admits that
Illinois courts have jurisdiction over it, but Scripto argues
that it has no liability for negligent design because it did not
design the lighter. Tokai moved to dismiss the lawsuit for lack Cons. 1-04-2609 and 1-04-2736
of personal jurisdiction. The trial court held that due process
did not permit the exercise of jurisdiction over Tokai because it
did not conduct any business in Illinois. Saia appeals.
This case presents the question of whether a foreign
corporation that designs a product can immunize itself from
liability for negligent design by marketing the product through a
subsidiary. We hold that it cannot. We find that the use of a
subsidiary to introduce the product it designed to Illinois
markets suffices for the exercise of personal jurisdiction over
the foreign corporation for an action for negligent design.
BACKGROUND
On June 3, 1999, an apartment building in Roselle, Illinois,
caught fire. Alexis Saia died a few months later. Her mother,
Helen Saia, special administrator of Alexis's estate, sued Tokai,
Scripto, and others, alleging that Helen's three-year-old son got
his hands on an Aim 'n Flame II lighting rod while the family
slept on June 3, 1999. A flame from that rod started the fire
that led to Alexis's death. The family bought the lighting rod
at a K mart in Illinois.
Helen sought to recover on theories of strict products
liability and negligent design. Scripto admitted in its answer
that it distributed the Aim 'n Flame II lighting rod, but it
claimed that Tokai, not Scripto, designed the rod.
Tokai moved to dismiss the complaint for lack of personal
jurisdiction. Tokai's director swore in an affidavit that Tokai
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had no offices, no mailing address and no local telephone listing
in Illinois, it never had any employees in Illinois, and it
transacted no business in Illinois. Tokai never sent its
officers into Illinois to conduct any business, it did not
directly distribute its products in Illinois, and it "does not
directly profit from the sale or marketing of products sold in
the state of Illinois." However, the director admitted that
Tokai owned all stock of its subsidiary, Scripto.
A manager for Tokai admitted that Tokai designed the Aim 'n
Flame II lighting rod. Tokai made Scripto its exclusive
distributor in the United States for its lighting rods and other
lighters, but "this distributor arrangement has not been reduced
to a formal agreement." Scripto's subsidiary, JMP Mexico,
manufactured the lighting rods. Tokai's manager swore that
"Tokai does not control the marketing or distribution of lighting
rods *** distributed by Scripto." An officer of Scripto
similarly said in an affidavit that "Tokai has never directed or
requested Scripto to market or sell utility lighters *** in the
state of Illinois." Tokai manufactured some of the component
parts of the Aim 'n Flame II lighting rods. The manager swore
that "Tokai is not involved in decisions concerning how
[component] parts are used by Tokai's customers," including JMP
Mexico.
The court permitted the parties to conduct discovery limited
to the issue of personal jurisdiction over Tokai. In its
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verified answer to special interrogatories, Scripto said it
distributed Aim 'n Flame lighting rods to some of its customers,
including K mart, and the customers resold the lighting rods to
consumers in Illinois. Scripto refused to disclose the names of
other customers that may have resold the lighting rods in
Illinois, and it refused to divulge the number of units it
shipped or any terms of its contracts. Scripto and Tokai both
claimed they were "unaware of the precise numbers of [Aim 'n
Flame II lighting rods] re-sold by its customers in the State of
Illinois."
In an interrogatory Helen sought information concerning "the
amount of revenue received by TOKAI *** as a result of the sale
of any product, including, but not limited to, *** Aim N Flame
Lighters within the State of Illinois since 1996." Tokai
answered: "[A]s Tokai reasonably construes this Interrogatory,
Tokai responds as follows: None with respect to lighting rods."
But Tokai admitted that its agreement with Scripto permitted
sales of its lighting rods in Illinois.
At oral argument the trial judge challenged Tokai's
assertion that it did not directly profit from sales of Aim 'n
Flame II lighting rods in Illinois. Tokai's attorney said:
"There's no evidence in this case that Tokai garnered
any profit.
* * *
*** Honestly, I don't want to make a
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misrepresentation as to the financial setup of if
they're compensated for the design or not. The point
is there is no evidence in the record ***.
*** Tokai at one point manufactured and
distributed in the United States [a different model Aim
'n Flame] utility lighter, so arguably there's a
connection with the [other model] utility lighter in
the United States. No such connection exists with the
lighter at issue here."
The trial court granted Tokai's motion to dismiss the
complaint against Tokai for lack of personal jurisdiction.
ANALYSIS
Tokai argues first that we should ignore all discovery and
affirm because the complaint does not state sufficient facts to
establish a prima facie case for personal jurisdiction. Tokai
did not raise this issue in the trial court. "Generally,
pleading defects must be raised at trial so that they may be
remedied; otherwise, the defects are waived." In re Andrea D., 342 Ill. App. 3d 233, 242 (2003). If the affidavits, discovery
responses and other evidence before the trial court show that
Helen could allege grounds for personal jurisdiction, but we find
that the complaint does not include such allegations, we must
remand to permit Helen to amend the complaint. See Builders Bank
v. Barry Finkel & Associates, 339 Ill. App. 3d 1, 10 (2003). The
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alleged deficiency of the complaint cannot warrant affirmance
here.
The court in Gaidar v. Tippecanoe Distribution Service,
Inc., 299 Ill. App. 3d 1034 (1998), explained the applicable
standard of review. Because the trial court heard no testimony
and decided the issue of personal jurisdiction based solely on
documents in the record, we review the judgment de novo. Gaidar,
299 Ill. App. 3d at 1040. The plaintiff bears the burden of
proving a prima facie case for jurisdiction. Gaidar, 299 Ill. App. 3d at 1040-41. A defendant's uncontradicted evidence can in
some cases defeat jurisdiction. Gaidar, 299 Ill. App. 3d at
1041. If the parties' evidence leaves a material issue of fact
whose resolution will determine whether the trial court has
personal jurisdiction over the defendant, the trial court must
hold an evidentiary hearing concerning jurisdiction. Stein v.
Rio Parismina Lodge, 296 Ill. App. 3d 520, 523 (1998). The
Illinois long-arm statute now permits the exercise of
jurisdiction to the extent due process concerns permit. Kostal v. Pinkus Dermatopathology Laboratory, P.C., 357 Ill. App. 3d
381, 386 (2005). Therefore, we review the record only to
determine whether the uncontradicted facts here demonstrate that
constitutional due process forbids the exercise of personal
jurisdiction over Tokai. Kostal, 357 Ill. App. 3d at 387.
Helen argues that Illinois has jurisdiction over Tokai
because Tokai introduced its lighting rods into the stream of
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commerce, knowing that its subsidiary would distribute the rods
to retailers that would market them in Illinois. Tokai counters
first that Helen waived the stream-of-commerce argument by
failing to raise it in the trial court. Waiver constrains the
parties but not this court. Poullette v. Silverstein, 328 Ill.
App. 3d 791, 797 (2002). Moreover, the court should not dismiss
the complaint for want of personal jurisdiction if documents in
the record can support a finding of jurisdiction. See Bell v. Louisville & Nashville R.R. Co., 106 Ill. 2d 135, 142 (1985).
The court applied the stream-of-commerce theory of
jurisdiction in Oswalt v. Scripto, Inc., 616 F.2d 191 (5th Cir.
1980). In that case the plaintiff asked the federal court in
Texas to exercise jurisdiction over Tokai-Seiki, a Japanese
corporation. Tokai-Seiki manufactured a cigarette lighter and
sold it to Scripto, the exclusive distributor for Tokai-Seiki's
lighters in the United States. Scripto told Tokai-Seiki of its
intention to distribute the lighters to a customer for resale
through the customer's national retail outlets. Oswalt, 616 F.2d at 197. The record did not show how many lighters reached Texas.
The appellate court held:
"Tokai-Seiki delivered millions of the lighters to
Scripto with the understanding that Scripto would be
the exclusive distributor for the United States and
that Scripto would be selling the lighters to a
customer with national retail outlets. There is nothing
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in this record to indicate that Tokai-Seiki attempted
in any way to limit the states in which the lighters
could be sold. To the contrary, the record shows that
Tokai-Seiki had every reason to believe its product
would be sold to a nation-wide market, that is, in any
or all states. Moreover, the record shows that Texas
was one of the states in which the lighters were in
fact marketed, the distribution chain including a Texas
wholesaler and a Texas retail store. Given this
distributorship arrangement, Tokai-Seiki's conduct and
connection with Texas are such that it should
reasonably anticipate being haled into court in Texas."
Oswalt, 616 F.2d at 199-200. The court particularly noted that the exercise of jurisdiction
over Tokai-Seiki comported with the principles our supreme court
stated in Gray v. American Radiator & Standard Sanitary Corp., 22
Ill. 2d 432 (1961). Oswalt, 616 F.2d at 201-02.
In Gray, as in Oswalt and this case, the defendant did not directly market its product in the state that exercised
jurisdiction, and the plaintiff failed to show the extent of the
defendant's indirect benefit from sales in the forum state. The
defendant in Gray manufactured a safety valve that a manufacturer
in another state incorporated into a water heater eventually
installed in Illinois. The plaintiff alleged that she suffered
injury when the heater exploded due to negligent construction of
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the safety valve. The court said:
"[T]he defendant's only contact with this State is
found in the fact that a product manufactured in Ohio
was incorporated, in Pennsylvania, into a hot water
heater which in the course of commerce was sold to an
Illinois consumer. The record fails to disclose whether
defendant has done any other business in Illinois,
either directly or indirectly ***. We do not think,
however, that doing a given volume of business is the
only way in which a nonresident can form the required
connection with this State. ***
*** [T]he relevant inquiry is whether defendant
engaged in some act or conduct by which he may be said
to have invoked the benefits and protections of the law
of the forum. ***
In the case at bar defendant does not claim that
the present use of its product in Illinois is an
isolated instance. While the record does not disclose
the volume of [the defendant's] business or the
territory in which appliances incorporating its valves
are marketed, it is a reasonable inference that its
commercial transactions, like those of other
manufacturers, result in substantial use and
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consumption in this State. To the extent that its
business may be directly affected by transactions
occurring here it enjoys benefits from the laws of this
State, and it has undoubtedly benefited, to a degree,
from the protection which our law has given to the
marketing of hot water heaters containing its valves.
Where the alleged liability arises, as in this case,
from the manufacture of products presumably sold in
contemplation of use here, it should not matter that
the purchase was made from an independent middleman or
that someone other than the defendant shipped the
product into this State.
With the increasing specialization of commercial
activity and the growing interdependence of business
enterprises it is seldom that a manufacturer deals
directly with consumers in other States. The fact that
the benefit he derives from its laws is an indirect
one, however, does not make it any the less essential
to the conduct of his business; and it is not
unreasonable, where a cause of action arises from
alleged defects in his product, to say that the use of
such products in the ordinary course of commerce is
sufficient contact with this State to justify a
requirement that he defend here." Gray, 22 Ill. 2d at 438-42.
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The court in Wessinger v. Vetter Corp., 685 F. Supp. 769 (D.
Kan. 1987), applied similar principles to a product's designer.
In that case the plaintiff alleged that he suffered injury due to
the negligent design of a Honda motorcycle. He sued Honda
Research & Development Co. (Honda R&D). Honda R&D moved to
dismiss for lack of personal jurisdiction. Honda R&D designed
the motorcycle at issue, but it did not manufacture or distribute
motorcycles. The court said:
"'While [the defendant] greatly profits
from the sale of [its] vehicles in the United
States, it claims that it is immune from all
jurisdictional claims against it in the
United States. The court views this as a
company which seeks to reap all of the
benefits without incurring the resulting
liabilities and costs...
*** Any inconvenience to defendant in
defending this lawsuit is clearly outweighed
by Kansas' interest in protecting its
citizens from injury. The court finds that it
would be fundamentally unfair to allow a
foreign manufacturer to insulate himself from
the jurisdiction of this court by use of an
exclusive distributor ***.' [Cunningham v. Subaru of America, Inc., 631 F. Supp. 132,
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136 (D. Kan. 1986).]
First, Honda R & D's design may be likened to a
component of the Honda motorcycle; in fact, it is a
component which controls all other components.
[Citation.] Viewed as such, the design is a product.
Second, Honda R & D indirectly placed the product
into the stream of commerce. It regularly sold its
designs to its parent, Honda, which manufactured
motorcycles from the designs and sold the motorcycles
to American Honda, another wholly-owned subsidiary,
which distributed the motorcycles throughout the United
States. Given the relationship among the corporations,
Honda R & D undoubtedly knew that the finished products
made from its design would regularly be sold in Kansas.
[Citation.] Because of the absence of evidence
regarding the issue, we do not here hold that Honda R &
D, Honda, and American Honda are so tightly related
that the subsidiaries are mere alter-egos of the
parent. [Citations.] Rather, we simply refer to the
relationship to support our conclusion that Honda R & D
knowingly, regularly, and indirectly placed its
component product, the design, into the stream of
commerce.
Third, Honda R & D's product, the design, is an
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alleged source of Wessinger's injuries. ***
In summary, the court *** finds that the interests
of Wessinger in obtaining relief and of Kansas in
protecting its citizens from injury by inadequately
designed products are substantial and outweigh any
inconvenience or burden on Honda R & D." Wessinger,
685 F. Supp. at 776-78.
Here, as in Wessinger, the plaintiff claims that the
defendant's negligent design caused the injury. Tokai, like
Honda R&D, seeks to profit from its design through the
manufacture and sales, by its subsidiaries, of the products Tokai
designs. Tokai admits that it manufactured some of the component
parts of the Aim 'n Flame II lighting rods and then sent those
parts to JMP Mexico, the exclusive manufacturer of the lighting
rods. Tokai's subsidiary, Scripto, owns JMP. Although Tokai
claimed that it did not direct JMP in the use of the components
Tokai manufactured, Tokai admits that it designed the lighting
rod and JMP manufactured it, presumably in accord with Tokai's
design. Scripto then distributed the lighting rods to various
customers, including K mart, and some of those customers sold Aim
'n Flame lighting rods in Illinois.
Tokai's officer swore that Tokai did not directly profit
from the sales in Illinois. Tokai claims that on this record,
the court cannot conclude that Tokai, the product's designer,
profits in any way from the sales of its product in Illinois.
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Tokai cites, as support, Savage v. Scripto-Tokai Corp., 147 F.
Supp. 2d 86 (D. Conn. 2001).
In Savage a fire caused by an Aim 'n Flame lighting rod
injured the plaintiffs. The court held:
"Significantly, Tokai did not manufacture the final
product, only unidentified components, and so did not
ship the finished product to Scripto. Further, the
record contains no internal memoranda or other
communications between Scripto and its corporate
parent, such as sales reports or profit statements,
which could permit an inference that Tokai was aware of
or had some role in the nationwide scope of Scripto's
distribution of Aim n' Flames.
It is undisputed that Tokai has no specific
connections to the State of Connecticut ***.
*** The mere fact that Tokai is designer of the
subject product is insufficient to create personal
jurisdiction; accepting such a theory would allow for
the exercise of jurisdiction over every basement
inventor in the world, simply because a product he or
she conceived was manufactured and ended up in
Connecticut. In the absence of any contract spelling
out the terms of their arrangement, *** or any other
evidence describing the nature of any operational
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relationship between Scripto and Tokai, plaintiff's
record is insufficient to allow the constitutional
exercise of jurisdiction over Tokai.
*** Were the rhetoric in plaintiff's brief--that
Tokai 'sought to establish itself as a player in the
national market for utility lighters, and played an
active role in pursing that goal' and that Tokai
'created and controlled an enormous distribution chain
in the U.S. and Connecticut'--borne out by the evidence
submitted in opposition to the motion to dismiss, the
result in this case might well have been different.
Being haled into court in each of the United States
might be considered a fair price to pay for directed
involvement in international commerce, and due process
would perhaps not be abridged by the Court's assertion
of jurisdiction over Tokai in such circumstances.
[Citation.] However, there is no evidence that Tokai
is indeed the 'international player' plaintiff
describes. On the facts before it, the Court can reach
no conclusion but that the plaintiffs have failed to
meet their burden of demonstrating the existence of
personal jurisdiction over Tokai." Savage, 147 F. Supp. 2d at 93-95.
We disagree. Under the reasoning of Gray and Oswalt, where
the defendant does not claim that the use in Illinois is an
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isolated instance, "it is a reasonable inference that its
commercial transactions, like those of other [product designers],
result in substantial use and consumption in this State." Gray,
22 Ill. 2d at 442. Since Tokai owns all shares of the
distributor, Scripto, and Scripto owns the manufacturer, Tokai
obtains all profits from the manufacture and sale in this state
of the product it designed. We find the record sufficient to
support the conclusion that Tokai obtained considerable indirect
benefit from the profits its wholly owned subsidiary earns from
sales in Illinois of lighting rods Tokai designed.
Tokai argues that Illinois has no interest in jurisdiction
over Tokai because Scripto has submitted to the jurisdiction of
Illinois courts, and it has sufficient insurance coverage to
compensate Helen. In Samuels v. BMW of North America, Inc., 554 F. Supp. 1191 (E.D. Tex. 1983), the court found that it lacked
jurisdiction over the foreign manufacturer of the allegedly
defective car, because the court had jurisdiction over the
domestic distributor of the car. But in that case the
distributor gave the plaintiff a warranty covering the
automobile, and the plaintiff presented no issue the parties
could not fully litigate in the lawsuit against the distributor.
Here, Helen has a claim based on the lighting rod's
negligent design, and Scripto has answered that it did not design
the lighting rod and it has not in any way accepted
responsibility for the alleged negligence in that design. Helen
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may recover in strict liability for all her loss, but she also
may fail to recover under the strict liability counts. Defenses
that do not apply to negligent design cases may defeat cases in
strict liability. See Blue v. Environmental Engineering, Inc.,
215 Ill. 2d 78, 95-97 (2005). If Scripto succeeds in persuading
the trial court that it has no responsibility for the negligent
design, Helen may not have any domestic forum for litigating her
negligence claim. Illinois has an interest in providing its
citizens effective redress for negligent design of products
distributed here, and Illinois cannot protect this interest
unless it exercises jurisdiction over foreign designers that use
subsidiaries to distribute the products they design.
Following Gray, Oswalt and Wessinger, we find that Tokai has sufficient contacts with Illinois for the court to exercise
jurisdiction over Tokai for purposes of litigating Helen's claim
that Tokai negligently designed the Aim 'n Flame II lighting
rods. Accordingly, we reverse the judgment of the trial court
and remand for further proceedings on the cause of action.
Reversed and remanded.
TULLY and FITZGERALD-SMITH, JJ., concur.
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