Saia v. Scripto-Tokai Corp.

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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