Crum & Forster Specialty Ins. Co. v. Esa

Citation873 N.E.2d 964
Decision Date02 August 2007
Docket NumberNo. 1-06-1310.,No. 1-06-1386.,No. 1-06-1478.,1-06-1310.,1-06-1386.,1-06-1478.
PartiesCRUM & FORSTER SPECIALTY INSURANCE CO. and Diamond State Insurance Co., Counterplaintiffs-Appellants (Firemen's Fund Insurance Co., Counterplaintiff), v. EXTENDED STAY AMERICA, INC., Extended Stay, Inc., ESA Management L.L.C., HVM L.L.C., BRE/ESA Properties L.L.C., BRE/ESA Properties L.L.C., BRE/ESA TX Properties L.P., BRE/ESA FL Properties L.L.C., BRE/ESA MN Properties L.L.C., and BRE/ESA MD Properties Business Trust, Counterdefendants-Appellees. Transportation Insurance Company, Plaintiff, v. Quaker Window Products Co., Inc., Weather-Tite, Inc., Extended Stay America, Inc., Extended Stay, Inc., ESA Management LLC, HVM LLC, BRE/ESA Properties LLC, BRE/ESA PA Properties LLC, BRE/ESA TX Properties LLC, BRE/ESA FL Properties LLC, BRE/ESA MN Properties LLC, BRE/ESA MD Properties Management Trust, Hartford Fire Insurance Co., Columbia Mutual Insurance Company, Executive Risk Specialty Insurance Co., Firemen's Fund Insurance Co., Crum & Forster Specialty Insurance Co., Diamond State Insurance Co., Defendants.
CourtUnited States Appellate Court of Illinois

Mayer, Brown, Row & Maw, Chicago, for Counterdefendants/Appellees.

Justice MURPHY delivered the opinion of the court:

Extended Stay America (ESA), Inc. filed numerous law suits against Weather-Tite, Inc. (Weather-Tite) and Quaker Window Products Company, Inc. (Quaker) after purchasing allegedly defective windows. Two of Quaker's insurers, Crum & Forster Specialty Insurance Company (Crum & Forster) and Diamond State Insurance Company (Diamond State), through counterclaims, sought a declaration that they did not have an obligation to defend or indemnify Quaker in the windows cases. The trial court dismissed the counterclaims on the grounds that (1) it lacked personal jurisdiction over certain ESA entities and (2) those entities were necessary parties without which the case could not proceed. On appeal, Crum & Forster and Diamond State argue that the trial court erred in dismissing the counterclaims for lack of personal jurisdiction because the entities had the requisite contacts with Illinois to establish jurisdiction and, even if jurisdiction did not exist, that the "doctrine of representation" applied. For the following reasons, we affirm.

A. Windows Contract

Before 2004, ESA, Inc. operated a chain of hotels throughout the country and owned property in all 50 states. In 1995, it entered into a contract (national accounts contract) with Weather-Tite, an Illinois corporation, to supply windows for installation in ESA, Inc.'s hotels on a national scale. Quaker, a Missouri corporation, manufactured the windows, and Weather-Tite distributed them. Between 1996 and 2003, ESA, Inc. installed the windows in more than 200 hotels all over the country. The windows leaked, and in 2003, ESA, Inc. filed law suits against Quaker and Weather-Tite in 12 states.

B. Changes in ESA's Corporate Structure

In 2004, during the pendency of the underlying window litigation, an affiliate of the Blackstone group acquired ESA, Inc. It merged ESA, Inc. out of existence and created Extended Stay, Inc., a real estate investment trust. Ownership of the ESA hotels was transferred from ESA, Inc. to six new, indirect subsidiaries of Extended Stay, Inc.: BRE/ESA FL Properties L.L.C., BRE/ESA MN Properties L.L.C., BRE/ESA TX Properties L.P., BRE/ESA MD Properties Business Trust, BRE/ESA PA Properties L.L.C. (collectively, the state entities), and BRE/ESA Properties L.L.C.

The state entities became owners of the ESA hotels located in Florida, Minnesota, Texas, Maryland, and Pennsylvania, respectively. BRE/ESA Properties L.L.C. became the owner of all other ESA hotels, including those located in Illinois. These hotels were part of the national accounts contract, which was in place until 2003.

BRE/ESA Mezz L.L.C. was the first direct owner of the state entities, followed by BRE/ESA Mezz 2 L.L.C., and so on through BRE/ESA Mezz 8 L.L.C. ESA Management L.L.C. owned the BRE/ESA Mezz 1 through 8 entities. Extended Stay, Inc. owned ESA Management L.L.C.

The state entities leased their respective hotels to BRE/ESA Operating Lessee, Inc., which conducted business in Illinois. The operating lease agreement defined the term "landlord" as the state entities and BRE/ESA Properties, L.L.C. The lease also provided that the landlord was an indirect, wholly owned subsidiary of "Holdings," which was defined to mean ESA. The state entities assigned to BRE/ESA Operating Lessee "to the maximum extent provided by law * * * rights to proceed against any predecessors in title, contractors and materialmen for breaches of warranties or representations or for latent defects in the Leased Property." A third-party manager, HVM L.L.C., operated and managed the hotels pursuant to a management agreement between Operating Lessee and HVM's predecessor.

Each state entity maintains separate books, files its own tax returns, and keeps separate financial statements. The entities are organized under the laws of Delaware, and they maintain their administrative offices in South Carolina and New York. None of the state entities owns property or assets, has offices or employees, has engaged in sales activities, or has received any earnings from activities in Illinois. Further, none pays taxes, is licensed to do business, conducts any advertising, has registered agents, or maintains bank accounts in Illinois.

In addition, an agreement provided that all ESA hotels, including those owned by the state entities and those owned in Illinois, were included in ESA's centralized marketing and reservations system.

C. Coverage Action

After the restructuring, the ESA state entities also filed suits against Quaker and Weather-Tite, in states outside of Illinois. In response to the suits from all of the ESA entities, Quaker sought defense from its eight liability insurers, including Transportation, Crum & Forster, and Diamond State, under liability policies that were in place between 1996 and 2003. Transportation, one of the insurers, filed a declaratory action in Cook County seeking a determination as to whether it owed Quaker a duty to defend or indemnify against the window claims. Transportation's action named Quaker, Weather-Tite, Quaker's other liability insurers, and all 10 ESA entities that were plaintiffs in the underlying tort actions, including the state entities, as defendants.

Three of Quaker's insurers, Crum & Forster, Diamond State, and American Automobile, filed counterclaims seeking similar declarations. The ESA defendants moved to dismiss the complaint and all counterclaims on the basis that (1) the trial court lacked personal jurisdiction over the ESA state entities because they had no contacts with Illinois and (2) the ESA state entities were necessary parties without which the coverage action could not proceed.

Before the hearing on the motion to dismiss, five of the insurers entered into a settlement agreement that resolved the ESA tort claims against Quaker and its claims for defense or indemnity under those insurance policies. The settlement agreement is not included in the record; however, trial-court pleadings described that ESA would become a judgment creditor of Quaker and would seek to satisfy the portion of the judgment not fully funded by the settling insurers' policies by filing a "reach and apply" action against the proceeds on Quaker's insurance policies in Missouri. ESA reached a separate settlement with Weather-Tite. Crum & Forster, Diamond State, and American Automobile were the only insurers that refused to settle. Accordingly, the trial court only heard the ESA defendants' motion to dismiss the counterclaims of Crum & Forster, Diamond State, and American Automobile.

The trial court determined that it did not have personal jurisdiction over the ESA state entities. Furthermore, it dismissed the case in its entirety because the state entities were necessary parties. Crum & Forster and Diamond State now appeal the trial court's dismissal of their counterclaims. American Automobile did not appeal the dismissal of its counterclaim.

A. Personal Jurisdiction

For purposes of determining personal jurisdiction, a plaintiff carries the burden of establishing a prima facie basis upon which jurisdiction over the defendant can be exercised. Palen v. Daewoo Motor Co., Ltd., 358 Ill.App.3d 649, 659, 295 Ill. Dec. 22, 832 N.E.2d 173 (2005). A plaintiff's prima facie case may be overcome by a defendant's uncontroverted evidence that defeats jurisdiction. Palen, 358 Ill.App.3d at 659, 295 Ill.Dec. 22, 832 N.E.2d 173. When a trial court determines jurisdiction solely on the basis of documentary evidence and hears no courtroom testimony, we review the issue of jurisdiction de novo. Palen, 358 Ill.App.3d at 659, 295 Ill.Dec. 22, 832 N.E.2d 173.

1. Specific Jurisdiction Under Section 2-209(a)

In determining whether an Illinois court may assert personal jurisdiction over a nonresident defendant, we traditionally use a two-prong analysis, evaluating whether the facts of the case meet the requirements for (1) personal jurisdiction under the Illinois long-arm statute and (2) due process under both the United States and Illinois constitutions. Commerce Trust Co. v. Air 1st Aviation Companies, Inc., 366 Ill.App.3d 135, 140, 303 Ill.Dec. 233, 851 N.E.2d 131 (2006). The long-arm statute enumerates 14 specific acts upon which jurisdiction over a nonresident defendant can be exercised. 735 ILCS 5/2-209(a) (West 2004). Crum & Forster and Diamond State assert two of those acts as bases for jurisdiction over the state entities: the transaction of business within Illinois and the making or performance of a contract substantially connected with Illinois.

The two-step analysis has been considered unnecessary, however, because section...

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