ISI International Inc. v. Borden Ladner Gervais llp

• Citation: 256 F.3d 548
• Decision Date: 02 July 2001
• Docket Number: No. 99-1815,99-1815
• Parties: (7th Cir. 2001) ISI International, Inc., Plaintiff-Appellant, v. Borden Ladner Gervais llp, successor to Scott & Aylen, Defendant-Appellee
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 548

256 F.3d 548 (7th Cir. 2001)

ISI International, Inc., Plaintiff-Appellant, v. Borden Ladner Gervais llp, successor to Scott & Aylen, Defendant-Appellee.

No. 99-1815

In the United States Court of Appeals For the Seventh Circuit

Argued May 18, 2001

Decided July 2, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 C 7614--Suzanne B. Conlon, Judge.

Before Easterbrook, Manion, and Evans, Circuit Judges.

Easterbrook, Circuit Judge.

Bert Reitsma, a physician living in Ontario, invented a device for draining surgical wounds. He asked Yves Menard, a solicitor at Scott & Aylen (based in Ottawa) to incorporate a firm to exploit this invention. (Scott & Aylen and several other partnerships merged into Borden Ladner Gervais llp after this suit began; for clarity we retain the "S&A" acronym.) Reitsma also engaged Max Wood, one of S&A's patent agents, to obtain patents for the invention. Wood hired a law firm based in Grand Rapids, Michigan, to prosecute a patent application in the United States. In 1995 Reitsma licensed the worldwide rights to make and sell the invention to ISI Surgical Instruments Canada, Ltd., an Ontario corporation, under a license specifying that disputes would be resolved by Ontario courts under Ontario law. The license did not transfer ownership of the patent applications. The next year ISI International, Inc., an Illinois corporation, acquired all of the shares in ISI Ontario, whose rights under the agreement with Reitsma soon were assigned to ISI International. Reitsma later attempted to end the license. Menard sent letters to ISI International's customers around the world, telling them on behalf of Reitsma that ISI International no longer had any rights in the invention and that to avoid liability for "damages suffered by our client as a result of [your] infringement of [his] patent" they must "cease and desist from dealing in any way with the said product except at the request of our client." This letter twice stated that Reitsma holds a patent on the device, yet S&A well knew that Reitsma had none. (He never received one, either; in September 1997 S&A arranged at Reitsma's request for the abandonment of all pending applications.) One of these letters went to American Pharmaceutical Partners in California, which dropped ISI International like a hot potato. So did everyone else. Today its principal assets are lawsuits.

One of these, a counterclaim against Reitsma in litigation (No. 97 C 3827) that had been commenced by a recipient of S&A's cease-and-desist letter, led to a judgment in ISI International's favor for almost $290 million plus a declaration that the attempted license cancellation was ineffectual. Reitsma defaulted, but damages still had to be established. After the prove-up Judge Leinenweber wrote a 17-page opinion with extensive findings of fact. The court found that, by striking an agreement with Jokari /US, Inc., for use of a complementary product, Reitsma had disabled himself from unilaterally terminating the license. (Jokari, which has headquarters in Texas, became an investor in ISI International.) The judge also concluded that "shortly after the formation of ISI [International], Reitsma, using his position of trust and authority as an officer and director of ISI [International], embarked on a pattern of intentional criminal conduct to fraudulently convert and embezzle funds from ISI [International] for his personal use." The court found that Reitsma's dealings (through S&A) with the U.S. Patent and Trademark Office, and with ISI International's potential customers, were part of his scheme to defraud. Reitsma did not appeal, but neither did he comply.

The suit now before us is ISI International's second principal asset. It is against S&A, which appears to be more solvent than Reitsma and certainly is more responsible; it has appeared and litigated in a civilized fashion. Although ISI International's complaint is windy and contains far too many "counts" (as if it were an indictment and each conviction on a separate count authorized additional punishment), it makes only two fundamental claims for relief. One is that S&A violated state and federal law by sending false and misleading letters to ISI International's business partners, causing them to cease dealing with ISI International. We call this the fraud claim. The principal state-law theory de pends on the tort of intentional interference with contract (or with prospective economic advantage, for those potential customers that had not yet signed contracts); the federal-law theory depends on sec.43(a)(1)(B) of the Lanham Act, 15 U.S.C. sec.1125(a)(1)(B), which forbids making false or deceptive statements in connection with commercial activities in interstate commerce. ISI International's second claim is that S&A committed malpractice and breached fiduciary duties that it owed to ISI International or its subsidiary ISI Ontario. This claim (which we call the fiduciary claim) depends on establishing that S&A served as counsel to one or both of the firms, as opposed to Reitsma personally.

What S&A wants--and what the district court gave it--is the opportunity to litigate these claims in Canada rather than the United States. Observing that neither Menard nor Wood performed any of the questioned acts in Illinois, S&A contended that the courts of that state lack personal jurisdiction over it. Because Fed. R. Civ. P. 4(k)(1)(A) links personal jurisdiction in federal cases to the jurisdiction of the state courts, if the state courts may not exercise jurisdiction then neither may the federal courts, on S&A's view, unless a federal statute authorizes nationwide (or worldwide) service of process--which the Lanham Act does not. The district court agreed with this submission, held that S&A lacks "minimum contacts" with the State of Illinois, and added that Illinois would not in any event exercise jurisdiction even if the Constitution permitted it. Illinois employs the fiduciary-shield doctrine, see Rollins v. Ellwood, 141 Ill.2d 244, 278, 565 N.E.2d 1302, 1314 (1990), under which a person who enters the state solely as fiduciary for another may not be sued in Illinois. S&A acted only as a fiduciary for Reitsma, the district court concluded, and therefore may not be sued in Illinois. (This conclusion effectively rejected the fiduciary claim on the merits, for if S&A never represented ISI International or ISI Ontario it had no fiduciary duties to them.) The district court added that even if Illinois could exercise personal jurisdiction over S&A, the suit still would be dismissed on the ground of forum non conveniens. Ottawa is a superior location for this litigation, the judge wrote.

The premise of the district court's opinion, and of the parties' appellate briefs, is that if the state courts in Illinois would not exercise personal jurisdiction over S&A, then federal courts may not do so. That premise is false. The due process clause protects persons from being haled into a court unless they have "minimum contacts" with the sovereign that established that court. See Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987); Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980). The jurisdiction whose power federal courts exercise is the United States of America, not the State of Illinois. So far as the Constitution is concerned, the right question is whether S&A has contacts with the United States--as it plainly does. No matter what one makes of the fiduciary claim (which if valid would link S&A to Illinois) or the fact that the letters sent to ISI International's business partners led to financial loss in Illinois (see Janmark, Inc. v. Reidy, 132 F.3d 1200 (7th Cir. 1997), a case that the district court did not mention), S&A cannot dodge the fact that it sent to California (using the United States Postal Service) a letter that had economic consequences in the United States. It engaged a law firm in Michigan; at S&A's instructions this firm first filed, and then abandoned, a patent application at the United States Patent and Trademark Office. Judge Leinenweber found that these acts caused multi- million-dollar losses in the United States. They expose S&A to the jurisdiction of the United States of America, which may exact sanctions if S&A's conduct violated the law. The threshold question thus is whether the federal court in Illinois has been authorized to exert the full power of the nation. Some federal statutes do this, and do so constitutionally. See, e.g., Sheet Metal Workers' National Pension Fund v. Elite Erectors, Inc., 212 F.3d 1031, 1035-36 (7th Cir. 2000) (collecting cases). The Lanham Act does not. But Fed. R. Civ. P. 4(k)(2) adds that in such situations:

If the exercise of jurisdiction is consistent with the Constitution and laws of the United States, serving a summons or filing a waiver of service is also effective, with respect to claims arising under federal law, to establish personal jurisdiction over the person of any defendant who is not subject to the jurisdiction of the courts of general jurisdiction of any state.

This provision, added in 1993, responds to the Supreme Court's suggestion that the rules be extended to cover persons who do not reside in the United States, and have ample contacts with the nation as a whole, but whose contacts are so scattered among states that none of them would have jurisdiction. See Omni Capital International v. Rudolf Wolff & Co., 484 U.S. 97, 111 (1987). See also Charles Alan Wright & Arthur R. Miller, 4A Federal Practice and Procedure sec.1124 (2000 pocket part). Thus if as S&A insists (and the district court held) S&A is not subject to the jurisdiction of state courts in Illinois, and also is "not subject to the jurisdiction of the courts of general jurisdiction of any state", then this suit may proceed,...