PHILOS TECHNOLOGIES v. PHILOS & D, INC. (June 15, 2011)

In late 2008, Philos Technologies brought suit for conversion against a South Korean company and two South Korean individuals. All the defendants were served but none appeared. Instead, the two individuals sent an informal letter to the court. In it, they claimed to have no relationship with Philos, that their relationship was with a Korean company, and requested dismissal of the lawsuit. The district court eventually entered a default judgment in Philos's favor for almost $3 million. Eleven months later, defendants moved to vacate the default judgment under Rule 60(b)(4) on the ground that the court lacked personal jurisdiction over the defendants. Judge Hibbler (N.D. Ill.) denied the motion, apparently as untimely, without reaching the merits of the jurisdiction question. Defendants appeal.

In their opinion, Judges Cudahy, Manion, and Hamilton reversed and remanded. The Court first addressed its standard of review. Although a Rule 60(b)(4) motion is usually reviewed with a somewhat deferential abuse of discretion standard, it is a per se abuse of discretion to deny such a motion if the underlying judgment is void. The Court turned to the timeliness issue. It noted the two options a defendant has to challenge personal jurisdiction. On the one hand, a defendant can appear and object and, if unsuccessful, take a direct appeal. On the other hand, a defendant can risk a default judgment and later challenge that judgment under Rule 60. That collateral challenge can be taken at any time. One thing a defendant may not do, however, is take advantage of both strategies. A defendant may not, for example, appear, challenge jurisdiction, abandon the challenge, and then reassert the challenge under Rule 60. Thus, the critical issue is whether the defendants' informal letter constituted an appearance. The answer is easy with respect to the Corporation because a Corporation cannot appear pro se. The Court also concluded that the individual defendants did not appear, applying the less stringent pro se filing standard. An appearance generally requires an indication that the defendant is going to defend the suit. Here, to the contrary, the Court found that defendants' letter was their explanation why they were not going to defend the suit. On the merits of the jurisdictional issue, the Court remanded to the district court for its consideration.