Philos Techs., Inc. v. Philos & D, Inc., Nos. 12-3446, 14-2007, 14-3153, (7th Cir. Sept. 22, 2015) [click for opinion]

Plaintiff Philos Technologies, Inc. (“Philos Tech”), an Illinois corporation, filed suit in Illinois court asserting claims against Philos & D, Inc. (“P&D”), a Korean company, and individuals Don-Hee and Jae-Hee Park, Korean citizens, for conversion related to unlawfully retained equipment. 

P&D and non-party PLS Tech Korea Co., Ltd. (“PLST”), a Korean company, executed two written agreements (a Joint Venture Agreement and an Equipment Agreement).  Philos Tech asserts that, on December 20, 2007, the same day P&D and PLST signed these agreements, Philos Tech had a phone meeting with the Parks and the parties decided to rescind and replace the Joint Venture Agreement between PLST and P&D with an oral agreement substituting Philos Tech for PLST.  Equipment and funds were transferred between Korea and Illinois in connection with these business dealings.  PLST sent equipment from Korea to Philos Tech, and Philos Tech sent the equipment back to Korea.  Defendants assert that these transfers were part of a foreign direct investment scam to allow P&D to obtain government benefits by creating the illusion that Illinois-based company Philos Tech was contributing to the Korean economy.

Defendants did not appear to answer the complaint, and the district court granted a default judgment and awarded damages.  Defendants then filed a motion to vacate the judgment as void due to lack of personal jurisdiction.  After appeal of the court’s initial determination that the motion to vacate was untimely, the district court held an evidentiary hearing to determine personal jurisdiction. 

Defendants called witnesses at the hearing.  Philos Tech called no witnesses.  The district court, relying on live testimony, affidavits, and other documentary evidence, vacated the judgment and dismissed the complaint for lack of personal jurisdiction, largely crediting Defendants’ version of the facts.  Following the district court’s ruling, Defendants filed a motion for sanctions.  The district court granted the motion and imposed sanctions under Federal Rule of Civil Procedure 11 in the amount of $778,489.72.

On appeal, the Seventh Circuit first addressed Philos Tech’s argument that the district court should have held a full hearing, where Philos Tech could call witnesses and before which Philos Tech could have conducted discovery.  The Seventh Circuit found that the district court never prohibited pre-hearing discovery or live testimony, but Philos Tech never requested either.  A district court may conduct an evidentiary hearing as long as both sides have the opportunity to fully present their cases, and both parties in this case had that opportunity.

Next, the Seventh Circuit affirmed the district court’s conclusion that it lacked personal jurisdiction.  The Seventh Circuit found that “the facts compel the conclusion that this was a Korean business deal from start to finish, with a couple of incidental interactions with Illinois.”  The fact that Defendants contracted with an Illinois company and may have had some conversations about it in Illinois did not outweigh the fact that Defendants did not solicit the Illinois company to enter into the agreement and did not travel to Illinois for the purpose of conducting business with the company.  Therefore, the Seventh Circuit found the situation to be different from that in Burger King Corp. v. Rudzewicz, and held that Defendants did not have sufficient contacts with Illinois to establish personal jurisdiction. 

Finally, regarding the award of sanctions, the Seventh Circuit vacated the award under the abuse of discretion standard, holding that the bases on which the sanctions were granted were not supported by the record.  In light of the record, the Seventh Circuit held that the district court was wrong to characterize Philos Tech’s bid for personal jurisdiction as unscrupulous or underhanded, and it thus vacated the sanctions award.

Meghan Hausler of the Dallas office contributed to this summary.