Court Opinion

ID: 2998902
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:48:31.137305+00
Date Added: 2024-06-11T18:01:42.092855
License: Public Domain

In the
 United States Court of Appeals
               For the Seventh Circuit
                          ____________

No. 05-2058
CENTRAL STATES, SOUTHEAST AND
SOUTHWEST AREAS PENSION FUND
and HOWARD MCDOUGALL,
                                            Plaintiffs-Appellants,
                                 v.

PHENCORP REINSURANCE COMPANY,
INC. and AMERICAN INDUSTRIAL
ASSURANCE COMPANY,
                                            Defendants-Appellees.
                          ____________
            Appeal from the United States District Court
       for the Northern District of Illinois, Eastern Division.
            No. 04 C 5655—Suzanne B. Conlon, Judge.
                          ____________
    ARGUED JANUARY 5, 2006—DECIDED MARCH 13, 2006
                    ____________

  Before FLAUM, Chief Judge, and ROVNER and WILLIAMS,
Circuit Judges.
  FLAUM, Chief Judge. This appeal concerns whether the
district court had personal jurisdiction over Defendant-
Appellee Phencorp Reinsurance Company (“Phencorp”),
a Barbados corporation. At all times relevant to this appeal,
Phencorp was a wholly owned subsidiary of Philip Services
Corporation (“PSC”), a U.S. corporation. Until 2003, PSC
was subject to a collective bargaining agreement, which
required PSC to make contributions on behalf of certain
2                                               No. 05-2058

employees to Plaintiff-Appellant Central States, Southeast
and Southwest Areas Pension Fund (“Central States”). In
2003, PSC declared bankruptcy and withdrew from the
pension fund. Pursuant to the Employee Retirement Income
Security Act (“ERISA”), PSC and other entities constituting
PSC’s “control group” were required to make withdrawal
liability payments to Central States. 29 U.S.C. §§ 1301(b)(1)
and 1381. PSC did not make any payments.
  Central States therefore brought suit against Phencorp
and American Industrial Assurance Company (“AIAC”)—
both subsidiaries of Phencorp and members of PSC’s
“control group”—to recover the payments. On August 27,
2004, Central States served Kevin Brindley (“Brindley”), a
United States resident whom Central States believed to be
a director of Phencorp, with a complaint and summons for
Phencorp. Unbeknownst to Central States, Brindley had not
been a Phencorp director in the last three years.
  Phencorp filed a motion to dismiss under Federal Rule
of Civil Procedure 12(b)(2), alleging that the district
court lacked personal jurisdiction over it. According to
Phencorp, its only contact with the United States was
through its parent company PSC, and this contact was
insufficient to establish the “minimum contacts” required
for personal jurisdiction. Phencorp also moved to dismiss
under Federal Rule of Civil Procedure 12(b)(5), on the
ground that service of process was insufficient because
Brindley was not affiliated with Phencorp at the time
he was served. In response to Phencorp’s motion to dismiss,
Central States filed a motion for extension of time in which
to effect service on Phencorp. Central States also requested
discovery concerning the personal jurisdiction issue.
  On February 3, 2005, the district court granted
Phencorp’s motion to dismiss for lack of personal jurisdic-
tion, denied Central States’s request to conduct discovery,
and denied Central States’s motion for extension of time
to effect service on Phencorp. Central States appeals. For
No. 05-2058                                                   3

the following reasons, we reverse the order and opinion of
the district court and remand for further proceedings
consistent with this opinion.

                      I. Background
  Central States is considered a multiemployer pension
plan under ERISA. See 29 U.S.C. §§ 1002(37) and
1301(a)(3). When an employer that participates in a pension
plan decides to withdraw, see id. § 1383, it is required to
pay withdrawal liability, see id. § 1381. For purposes of
determining withdrawal liability, ERISA defines an “em-
ployer” as the business that directly participates in the
plan, as well as those entities that constitute the business’s
“control group.” See id. § 1301(b)(1). All entities constituting
the control group incur withdrawal liability.
  Under the terms of a collective bargaining agreement,
PSC was required to make contributions to Central States’s
pension plan. PSC withdrew from the pension plan, and its
obligation to contribute to the plan ended on November 29,
2003. On February 9, 2004, PSC and other members of the
control group received a notice and demand for payment of
withdrawal liability from Central States. See id. §§ 1382(2)
and 1399(b)(1). On March 22, 2004, members of the control
group received notice that their withdrawal liability
payments were past due. PSC and other members of the
control group never made the payments.
  On June 16, 2004, Central States began an investiga-
tion of the control group. At this time, PSC provided
Central States with access to records for PSC’s subsidiaries,
including Phencorp. Phencorp’s records included a list of its
officers and directors serving from January 1, 2000, through
June 15, 2004. The list indicated that Brindley was a
director of Phencorp. According to Central States, it con-
tacted PSC and confirmed that the list of officers and
directors was current.
4                                               No. 05-2058

  On August 27, 2004, Central States filed suit against
Phencorp and AIAC. Central States served Brindley, a
United States resident, with Phencorp’s complaint and
summons. Phencorp did not answer the complaint or
otherwise plead before the 20-day time limit expired. See
F.R.C.P. 12(a). Central States filed a motion for entry
of default and default judgment against Phencorp. On
September 22, 2004, Brindley telephoned Central States
and stated that although he used to be the treasurer of
Phencorp, his relationship with the company ended more
than three years earlier.
  Phencorp filed an opposition to Central States’s mo-
tion for default judgment, arguing that service was im-
proper because Brindley was not an agent of Phencorp.
Phencorp maintains that Brindley was never an employee
of Phencorp; that he had not been an officer or board
member of Phencorp since November 14, 2001; and that
he was served at his home address, which is not owned
by or affiliated with Phencorp.
  Phencorp also filed a motion to dismiss under Federal
Rule of Civil Procedure 12(b)(2), alleging a lack of personal
jurisdiction. Phencorp states that it is an insurance com-
pany organized under the laws of Barbados, with its
principal place of business in St. Michael, Barbados.
According to Phencorp, it does not have any employees, real
estate, or a physical place of business in the United States,
and it does not maintain a website. Phencorp states that
although in the past it provided insurance for five compa-
nies with operations in the United States, it currently does
not conduct business in the United States and its only
connection to the United States is that it is owned by PSC.
  Central States responded to the motion to dismiss and
also filed a motion for extension of time to effectuate
service, in the event that the district court ruled that the
No. 05-2058                                                  5

prior service was ineffective. Additionally, Central States
requested discovery concerning personal jurisdiction.
  On February 3, 2005, the district court denied Central
States’s motion for entry of default and default judgment
and held that service was ineffective because Brindley
was not a director of Phencorp at the time of service. The
district court also granted Phencorp’s motion to dismiss
for lack of personal jurisdiction, without prejudice, find-
ing that Phencorp lacked sufficient minimum contacts
with the United States. The district court denied discovery
to Central States, finding that Central States’s evidence did
not establish a “colorable basis for jurisdiction” and thus
that Central States was not entitled to discovery. Finally,
the district court denied Central States’s motion for exten-
sion of time to effect service on Phencorp, because Phencorp
did not have sufficient contacts with the United States to
establish personal jurisdiction. Central States appeals.

                      II. Discussion
A. Standard of Review
We review de novo the district court’s dismissal of Central
States’s claim for lack of personal jurisdiction. See, e.g.,
Claus v. Mize, 317 F.3d 725, 727 (7th Cir. 2003). In the
proceedings below, Central States had the burden to show
that personal jurisdiction over Phencorp exists. See, e.g.,
Steel Warehouse of Wis., Inc. v. Leach, 154 F.3d 712, 714
(7th Cir. 1998).
  We review the district court’s decision on discovery
matters for an abuse of discretion. Commonwealth Ins. Co.
v. Tital Tire Corp., 398 F.3d 879, 888 (7th Cir. 2004). “A
court does not abuse its discretion unless . . . (1) the record
contains no evidence upon which the court could have
rationally based its decision; (2) the decision is based on
an erroneous conclusion of law; (3) the decision is based
6                                                No. 05-2058

on clearly erroneous factual findings; or (4) the decision
clearly appears arbitrary.” Musser v. Gentiva Health Servs.,
356 F.3d 751, 755 (7th Cir. 2004) (quoting Sherrod v.
Lingle, 223 F.3d 605, 610 (7th Cir. 2000)) (internal quota-
tion marks omitted).

B. Personal Jurisdiction Under ERISA
  “[A]ny district court in which a plaintiff brings an ac-
tion under Title I of ERISA will have personal jurisdic-
tion over the defendant,” if the defendant is properly served
and has sufficient minimum contacts with the United
States. Waeltz v. Delta Pilots Retirement Plan, 301 F.3d 804,
808 n.3 (7th Cir. 2002); see also 29 U.S.C. § 1132(e)(2)
(“Where an action under this subchapter is brought in a
district court of the United States, it may be brought in the
district where the plan is administered, where the breach
took place, or where a defendant resides or may be found,
and process may be served in any other district where a
defendant resides or may be found.”). Thus, in our personal
jurisdiction analysis, we must determine if Phencorp had
sufficient contacts with the United States as a whole.
   These contacts “may be related or unrelated to the facts
forming the basis for the lawsuit.” Int’l Med. Group, Inc.
v. Am. Arbitration Ass’n, Inc., 312 F.3d 833, 846 (7th
Cir. 2002). “Contacts related to the subject matter of the
lawsuit may give rise to specific personal jurisdiction, that
is, jurisdiction over the person for a case arising from those
contacts.” Id. (citing Helicopteros Nacionales de Colombia,
S.A. v. Hall, 466 U.S. 408, 414 (1984)). “When the contacts
with the forum state are unrelated to the subject matter of
the lawsuit, general personal jurisdiction may be estab-
lished if the defendant’s contacts are so continuous and
systematic that the defendant could reasonably foresee
being haled into court in that state for any matter.” Id.
(citing Helicopteros, 466 U.S. at 414-15).
No. 05-2058                                                    7

C. Proceedings Before the District Court
  Central States argues that dismissal at the pleadings
stage was inappropriate in this case because the district
court considered only whether it could exercise specific
personal jurisdiction over Phencorp and failed to con-
sider whether general personal jurisdiction existed.
Phencorp argues in response that the district court consid-
ered both specific and general personal jurisdiction.
  We agree with Central States that the district court erred
by not addressing whether general personal jurisdiction
over Phencorp existed or whether additional discovery could
lead to evidence that would support a finding of general
jurisdiction. Although the district court did not specify
whether it was considering specific or general personal
jurisdiction, its analysis relates to specific personal jurisdic-
tion. The district court explained that “Phencorp’s involve-
ment in the events giving rise to this suit is based solely on
its PSC affiliation” and held that jurisdiction could not be
based solely on Phencorp’s status as a subsidiary of a U.S.
corporation. The district court also concluded that Phencorp
itself had insufficient contacts with the United States to
establish jurisdiction, because although the complaint
alleged that Phencorp had connections to the United States
through its issuance of insurance policies to five U.S.
companies, “none of the identified business transactions
gave rise to this case.”
  The district court made one finding that could apply
to the question of general jurisdiction: It found that the
tax returns presented as evidence by Central States
were filed by PSC for all of its subsidiaries and therefore
did not demonstrate that Phencorp considered itself a
U.S. domestic corporation or should be considered as
such by the court. However, the district court never consid-
ered whether the five policies Phencorp issued to U.S.
companies were sufficient either to establish general
8                                                No. 05-2058

personal jurisdiction or to allow Central States to con-
duct discovery regarding personal jurisdiction.
  Phencorp points out that the district court’s opinion refers
to the “continuous and systematic business contacts” test,
which is the test used to determine if general personal
jurisdiction exists. Int’l Med. Group, 312 F.3d at 846.
However, the district court makes the reference to “continu-
ous and systematic business contacts” in the part of its
opinion that summarizes Central States’s arguments, not in
the later parts of the opinion in which it analyzes personal
jurisdiction and Central States’s discovery request.
  Additionally, the district court denied Central States’s
request for discovery on the ground that, “[e]ven if Central
States were to conduct further discovery regarding
Phencorp’s contacts with the United States, discovery would
not establish any contacts arising out of or relating to”
Phencorp’s duty to make withdrawal liability payments.
The district court’s denial of Central States’s discovery
request appears to be based on an erroneous conclusion of
law—that Central States can establish personal jurisdiction
over Phencorp only if Phencorp’s contacts with the United
States are related to the subject matter of Central States’s
suit. Because the district court did not consider the exis-
tence of general personal jurisdiction, its decision on
discovery constituted an abuse of discretion. See Musser,
356 F.3d at 755 (decision based on erroneous conclusion of
law constitutes an abuse of discretion).

D. General Personal Jurisdiction and Discovery
   Next, we must consider whether Central States has met
its burden of demonstrating the existence of general
personal jurisdiction, Jennings v. AC Hydraulic A/S, 383
F.3d 546, 548 (7th Cir. 2004), or, alternatively, has estab-
lished a prima facie case for personal jurisdiction, such that
it should have been allowed to conduct discovery. Purdue
No. 05-2058                                                   9

Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773,
782 (7th Cir. 2003) (“[W]hen the district court rules on a
defendant’s motion to dismiss based on the submission of
written materials, without the benefit of an evidentiary
hearing, as the district court did here, the plaintiff ‘need
only make out a prima facie case of personal jurisdiction.’ ”
(quoting Hyatt Int’l Corp. v. Coco, 302 F.3d 707, 713 (7th
Cir. 2002))).
   According to Central States, it has met its burden of
establishing personal jurisdiction. It emphasizes that
Phencorp was identified as a domestic corporation on
2000, 2001, and 2002 U.S. tax forms and issued at least five
insurance policies to U.S. companies between 1995 and
2004. Additionally, Central States suggests that Phencorp
may have kept in communication with those
five policyholders, and questions whether Phencorp has
issued insurance policies to any additional U.S. customers.
Furthermore, Central States argues that even if these
five policies themselves are not sufficient to demonstrate
the existence of personal jurisdiction, it should have
been granted discovery to determine if additional con-
tacts exist that would establish general personal juris-
diction. In the district court, Central States requested
discovery “with respect to the negotiation of the [five
policies issued to U.S. companies], the terms of the
policies themselves, the monitoring of the policies, the
claims filed, if any, under the policies, the premiums
collected, the underwriting of the policies, . . . the attempts,
if any, to secure other business in the United States,” and
the total percentage of Phencorp’s business the policies
represent.
   Phencorp admits that it has provided insurance policies to
U.S. customers, but maintains that any contacts it once had
with the United States ended in 2004, when the last of the
five policies expired. Phencorp submitted a declaration of
Phillip Young (“Young”), a director of Phencorp, in support
10                                               No. 05-2058

of this assertion. Young stated that: Phencorp is a Barbados
Corporation, with its principal place of business in St.
Michael, Barbados; Phencorp has no employees in Illinois
or elsewhere in the United States and, to the best of his
knowledge, never has; Phencorp owns no real estate in
Illinois or elsewhere in the United States and, to the best of
his knowledge, never has; Phencorp operates no place of
business in Illinois or elsewhere in the United States and,
to the best of his knowledge, never has; Phencorp maintains
no website and is not referenced on PSC’s website; Phencorp
“does not currently do any business in the United States”;
to the best of his knowledge, the only business dealings
Phencorp has ever had with parties operating in the United
States are issuing reinsurance policies to four U.S. compa-
nies, from 1995 to 2002, and providing insurance under an
excess directors and officers’ liability policy for a U.S.
company, from 2003 to May 2004.
  We agree with the district court that Central States has
not met its burden of demonstrating personal jurisdiction
over Phencorp. Four of the five policies that Phencorp
issued to U.S. companies expired by 2002, and the fifth
expired in May 2004. Central States did not file suit
until the fall of 2004. See Wild v. Subscription Plus, Inc.,
292 F.3d 526, 528 (7th Cir. 2002) (“jurisdiction is
normally determined as of the date of the filing of the suit”).
Additionally, the tax forms that Central States submitted
as evidence, for the years 2000, 2001, and 2002, are insuffi-
cient to demonstrate that Phencorp has continuing and
systematic contacts with the United States. See 26 U.S.C.
§ 953(d) (statute allowing a foreign insurance company to
elect to be treated as a domestic corporation for tax pur-
poses).
  As explained above, however, the district court erred by
denying Central States’s request for discovery without
analyzing that request in light of the requirements for
establishing general personal jurisdiction. We therefore
No. 05-2058                                                 11

must determine if Central States made out a prima facie
case for personal jurisdiction, which is required before it
is allowed to conduct discovery. See Purdue Research
Found., 338 F.3d at 782. In this analysis, Central States “is
entitled to the resolution in its favor of all disputes concern-
ing relevant facts presented in the record.” Id. (quoting
Nelson v. Park Indus., Inc., 717 F.2d 1120, 1123 (7th Cir.
1983)) (internal quotation marks omitted). We will “read the
complaint liberally, in its entirety, and with every inference
drawn in favor” of Central States. Textor v. Bd. of Regents
of Northern Ill. Univ., 711 F.2d 1387, 1393 (7th Cir. 1983).
  The fact that Phencorp may have had a sufficient connec-
tion with the United States in the past (through issuance of
the five policies discussed above) does not demonstrate a
“continuing” connection. However, Central States suggested
in the proceedings below that Phencorp may have continu-
ing relationships with its five U.S. policyholders and/or may
be soliciting additional business in the United States.
Although in his declaration for Phencorp Young states that
Phencorp is not currently “doing any business” in the
United States, he does not say specifically that it is not
attempting to do so or does not send agents to the United
States. Since Central States was denied the opportunity to
engage in discovery, it is not surprising that it can do little
more than suggest that Phencorp currently has minimum
contacts with the United States.
  Additionally, while the 2000, 2001, and 2002 tax forms
are not sufficient to establish personal jurisdiction over
Phencorp, they do help make out the prima facie case
necessary for Central States to be permitted discovery.
Phencorp disagrees. It argues that the tax returns were
created by its parent company, PSC, and submitted to
the Internal Revenue Service as an attachment to
PSC’s consolidated tax return. According to Phencorp, the
tax forms do not “represent any ‘election’ by Phencorp.”
12                                               No. 05-2058

  There are several problems with Phencorp’s arguments.
First, it is possible that Phencorp informed PSC that it
wished to be treated as a U.S. domestic corporation for tax
purposes. Young stated in a supplemental declaration
that the forms were prepared and submitted by PSC,
but did not state that PSC submitted the forms without any
consultation with Phencorp. It is reasonable to infer that
Phencorp had some choice in the matter, as the statute that
allows a foreign insurance company to be treated as a
domestic corporation for tax purposes, 26 U.S.C. § 953(d),
states that such a company may elect to be treated as a
domestic corporation, id. (emphasis added). In doing so, it
“waives all benefits to such corporation granted by the
United States under any treaty,” id. § 953(d)(1)(D), and is
“treated as transferring . . . all of its assets to a domestic
corporation” for purposes of certain taxes, id. § 953(d)(4)(A).
Additionally, if Phencorp made an election, it is possible
that it should still be considered a domestic corporation for
tax purposes, as the election “shall apply to the taxable year
for which made and all subsequent taxable years unless
revoked with the consent of the Secretary [of the Trea-
sury].” Id. § 953(d)(2)(a).
  Although this is a close case, when we consider the record
in its entirety and draw all inferences in favor of Central
States, we find that Central States has established a prima
facie case for general personal jurisdiction. Therefore, we
must reverse the district court’s opinion and order and
remand to allow Central States to conduct discovery
regarding general personal jurisdiction over Phencorp.

E. Service of Process
  Phencorp argues that personal jurisdiction also fails
because Phencorp was never properly served with process.
Phencorp urges us to affirm the district court’s opinion
solely on this alternative ground. According to Phencorp,
No. 05-2058                                                13

Central States waived this issue by failing to discuss the
issue in its opening brief. See Kauthar SDN BHD v. Stern-
berg, 149 F.3d 659, 667-68 (7th Cir. 1998). This waiver,
Phencorp argues, is dispositive of the entire appeal, because
lack of proper service establishes that the court does not
have personal jurisdiction over Phencorp.
  We can quickly dispose of this argument. The district
court’s decision to deny Central States’s motion for an
extension of time in which to effectuate service on Phencorp
turned on its finding that personal jurisdiction was lacking.
The district court explained that “[e]ven if Central States
were permitted an extension of time and managed to effect
proper service, the court would lack personal jurisdiction
over Phencorp,” because “Phencorp does not have sufficient
contacts with the United States.” We are reversing the
district court’s ruling on jurisdiction, because the district
court did not consider general personal jurisdiction. Our
holding undermines the district court’s ruling on Central
States’s motion for extension of time; thus, that ruling must
be reversed as well.
   On remand, Central States should be allowed reasonable
time to serve Phencorp. Equitable considerations weigh in
favor of this conclusion. It appears from the record that
Phencorp avoided process because its parent company failed
to provide Central States with up-to-date contact informa-
tion for Phencorp’s officers and directors. Additionally, since
failure of service is, in this case, a curable defect, it would
be unduly harsh to treat Central States’s failure to address
the issue in its brief as dispositive of its entire claim. Cf.
Central States, S.E. & S.W. Areas Pension Fund v. Reimer
Express World Corp., 230 F.3d 934, 942 (7th Cir. 2000)
(finding that ERISA service of process provisions are
consistent with Federal Rule of Civil Procedure 4(k)(2),
which permits personal jurisdiction through international
service).
14                                             No. 05-2058

                    III. Conclusion
  For the foregoing reasons, we REVERSE the opinion and
order of the district court and REMAND to the district court
for further proceedings consistent with this opinion.

A true Copy:
      Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                   USCA-02-C-0072—3-13-06