Philos Technologies Inc. v. Philos & D Inc.

• Decision Date: 15 June 2011
• Docket Number: No. 10–2854.,10–2854.
• Citation: 79 Fed.R.Serv.3d 1390,645 F.3d 851
• Court: U.S. Court of Appeals — Seventh Circuit
• Parties: PHILOS TECHNOLOGIES, INC., Plaintiff–Appellee,v.PHILOS & D, INC., et al., Defendants–Appellants.

645 F.3d 851

79 Fed.R.Serv.3d 1390

PHILOS TECHNOLOGIES, INC., Plaintiff–Appellee,

v.PHILOS & D, INC., et al., Defendants–Appellants.

No. 10–2854.

United States Court of Appeals, Seventh Circuit.

Argued April 7, 2011.Decided June 15, 2011.

Thomas A. Vickers (argued), Attorney, Vanek, Vickers & Masini, Chicago, IL, for Plaintiff–Appellee.Andrew McDonald Johnstone (argued), Attorney, Winston & Strawn LLP, Chicago, IL, John W. Moss, Attorney, Winston & Strawn LLP, Washington, DC, for Defendants–Appellants.Before CUDAHY, MANION, and HAMILTON, Circuit Judges.HAMILTON, Circuit Judge.

This appeal calls on us to determine whether a party may, nearly a year after the entry of a default judgment, move to vacate the judgment on the ground that it was void for a lack of personal jurisdiction. The district court concluded that the delay rendered untimely defendants' motion to vacate and denied the motion without reaching its merits. Because the defendants did not appear in the district court before entry of judgment, and because they are entitled to one full opportunity to litigate the jurisdictional issue, we reverse and remand.

I. The Facts

On December 18, 2008, plaintiff-appellee Philos Technologies, Inc., an Illinois corporation based in Wheeling, Illinois, filed a single-count complaint in the federal district court for the Northern District of Illinois. Philos Technologies asserted federal jurisdiction on the basis of diversity of citizenship and asserted a claim for conversion under Illinois law against defendants Don–Hee Park, Jae–Hee Park, and Philos & D, Inc., a South Korean corporation based in Gwangju, South Korea. According to the complaint, Philos Technologies had provided the defendants with equipment used to strengthen materials used in the metalworking industry, but never received the compensation for that equipment previously agreed upon by the parties.

Although the defendants were all successfully served with process in January 2009, they neither appeared in court nor filed an answer to the complaint. Instead, Don–Hee Park and Jae–Hee Park sent an informal pro se “Response Letter” to the district court in which they claimed that they had “no involvement ... whatsoever with Philos Technologies,” but instead had a business relationship with a Korean company named PLS Tech Korea. Any agreement for equipment with PLS Tech Korea had been terminated in August 2008, they explained, because of “differences of understanding.” For these reasons, the defendants “request[ed] dismissal of the lawsuit” against them.

Following the receipt of this letter, over four months passed without any further communication from the defendants. Finally, the district court granted Philos Technologies' motion for an entry of a default against the defendants on June 30, 2009. After a hearing on the issue of damages on July 21, 2009, the court entered a final judgment in favor of Philos Technologies totaling $2,916,332.

Nearly a year later, on June 14, 2010, counsel for the defendants entered an appearance and moved to vacate the default judgment under Federal Rule of Civil Procedure 60(b)(4). In their motion, the defendants argued that they never transacted business in Illinois and that they never entered into any contract with Philos Technologies, but instead contracted with PLS Tech Korea for the equipment at issue. They also argued that, even if they had been aware that PLS Tech Korea would obtain that equipment from Philos Technologies, that mere knowledge was not sufficient to support personal jurisdiction in Illinois. Moreover, Jae–Hee Park denied ever visiting Illinois, and Don–Hee Park claimed to have visited Illinois only after Philos & D had entered into its agreement with PLS Tech Korea. The defendants requested that the court vacate the default judgment as void for a lack of personal jurisdiction and dismiss the complaint under Rule 12(b)(2).

The district court denied the defendants' motion to vacate. The court did so without reaching the merits of defendants' personal jurisdiction objection, explaining somewhat cryptically that it saw “no legal justification for this matter coming before the Court well after judgment has been entered and all parties have had an opportunity to fully litigate the issues.” The district court added that, because it had received “sufficient and appropriate justification to exercise personal jurisdiction” at the time it granted default judgment against the defendants, it saw no reason to second-guess its original ruling on that issue. This appeal followed.

II. Analysis

Under Rule 60(b)(4) of the Federal Rules of Civil Procedure, a district court may relieve a party from a final judgment if the judgment is void for lack of personal jurisdiction over that party. Planet Corp. v. Sullivan, 702 F.2d 123, 125 n. 2 (7th Cir.1983). On appeal, the parties' dispute centers on two issues: (1) the appropriate standard of review for the denial of defendants' motion under that rule; and (2) whether defendants' motion was untimely. We address each issue in turn.

A. Standard of Review

As to the first issue, the defendants argue that we should review the denial of their Rule 60(b)(4) motion de novo because that motion asserted that the district court was without jurisdiction to enter judgment against them. In response, Philos Technologies argues that the proper standard of review is for an abuse of discretion because the defendants were properly served with process in this action.

We review the denial of most motions for relief under Rule 60(b) only for an abuse of discretion. E.g., Eskridge v. Cook County, 577 F.3d 806, 808 (7th Cir.2009) (reviewing denial of Rule 60(b) relief from plaintiff's own voluntary but mistaken dismissal of their case), citing Easley v. Kirmsee, 382 F.3d 693, 697 (7th Cir.2004) (affirming denial of Rule 60(b) relief for mistake, inadvertence, surprise, or excusable neglect). The standard of review for denial of a Rule 60(b)(4) motion is less deferential, however. As we explained in Blaney v. West, district courts have “little leeway” under Rule 60(b)(4): “Once a district court decides that the underlying judgment is void, the trial judge has no discretion and must grant the appropriate Rule 60(b) relief,” and it is “a per se abuse of discretion to deny a Rule 60(b)(4) motion when the trial court has no jurisdiction over the action.” 209 F.3d 1027, 1031 (7th Cir.2000); accord, be2 LLC v. Ivanov, 642 F.3d 555, 557–58 (7th Cir.2011) (reversing denial of relief); Relational, LLC v. Hodges, 627 F.3d 668, 671 (7th Cir.2010) (affirming denial of relief). A judgment entered against a defendant over whom the court had no jurisdiction is void, and no court has the discretion to refuse to vacate that judgment once it recognizes its lack of jurisdiction. See Textile Banking Co. v. Rentschler, 657 F.2d 844, 850 (7th Cir.1981).

The fact that a defendant was properly served with process does not give a district court discretion to deny an otherwise-meritorious Rule 60(b)(4) motion. We see no reason to treat a lack of jurisdiction caused by the improper service of process any differently from a lack of jurisdiction caused by the defendant's lack of sufficient minimum contacts with the forum.¹ A court “without personal jurisdiction of the defendant” is wholly “without power to proceed to an adjudication” binding on that defendant, regardless of the specific reason such jurisdiction is lacking. See Employers Reinsurance Corp. v. Bryant, 299 U.S. 374, 381, 57 S.Ct. 273, 81 L.Ed. 289 (1937). A court has no discretion to deny a Rule 60(b)(4) motion to vacate a judgment entered against a defendant over whom the court lacks personal jurisdiction, regardless of the specific reason such jurisdiction is lacking.²

B. Timeliness

In an attempt to avoid this more stringent standard of review, Philos Technologies argues that the defendants' Rule 60(b)(4) motion was merely an untimely attempt to bring a direct appeal from the default judgment. The defendants respond that Rule 60(b)(4) motions can be brought at any time after judgment. As best we can tell from the record, the district court agreed with Philos Technologies that the defendants' Rule 60(b)(4) motion was untimely because it was filed nearly a year after the entry of the default judgment against them.

This conclusion was erroneous. It failed to recognize a defendant's ability to decide whether to contest personal jurisdiction directly or in a post-judgment collateral proceeding. A defendant who believes that a court is without jurisdiction over his or her person has two distinct options. First, the defendant can appear in court and immediately object to the court's personal jurisdiction. Second, the defendant can “ignore the judicial proceedings, risk a default judgment, and then challenge that judgment on jurisdictional grounds in a collateral proceeding,” either in the court that issued the judgment or in a court where the plaintiff seeks to enforce that judgment. Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 706, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982); see Baldwin v. Iowa State Traveling Men's Ass'n, 283 U.S. 522, 525, 51 S.Ct. 517, 75 L.Ed. 1244 (1931) (“If, in the absence of appearance, the court had proceeded to judgment ... respondent could have raised and tried out the issue in the present [collateral] action, because it would never have had its day in court with respect to jurisdiction.”).

Each option carries its own risks and benefits. If the defendant opts to appear and contest jurisdiction, the defendant may take advantage of the fact that the plaintiff bears the burden of proving that the court has jurisdiction over that defendant. See Bally Export Corp. v. Balicar, Ltd., 804 F.2d 398, 401 (7th Cir.1986) (“Normally it is well established that the plaintiff must prove jurisdiction exists once it is challenged by the defendant.”). By appearing, however, the defendant in essence...