Case of the Day: CE Design Ltd. v. HealthCraft Products
Posted on May 10, 2017
The case of the day is CE Design Ltd. v. HealthCraft Products, Inc. (Ill. App. Ct. 2017). CE Design was an Illinois company, defunct since 2010, and HealthCraft was a Canadian home health equipment firm. ING, a Canadian insurance company, was HealthCraft’s liability insurer. CE Design brought a class action complaint against HealthCraft in Chicago, alleging that HealthCraft had sent it unsolicited faxes. HealthCraft tendered defense of the action to ING, which reserved its rights pending investigation. Meanwhile, HealthCraft hired its own lawyer, moved to dismiss, and eventually reached a preliminary settlement for approximately $500,000, along with an assignment of its rights under the ING policy to CE Design. The settlement was preliminary because class action settlements have to be approved by the court.
ING, which had had no notice of the settlement discussions, brought an action in Ontario while the Chicago case was still pending, seeking a declaration that it had no obligation to defend or indemnify HealthCraft. The Illinois court then approved the settlement, and CE brought a claim against ING in Illinois. Meanwhile, ING added CE Design as a defendant in the Ontario case. Ultimately the Ontario court agreed with ING that the claims were not covered by the insurance policy, rejecting CE’s forum non conveniens and personal jurisdiction arguments. It ordered CE Design to pay costs of approximately $20,000. ING sought recognition of the Canadian judgment in Illinois, so as to defeat CE’s claim there. The Illinois court held that the Canadian judgment could not be recognized, and ING appealed.
The court held that since CE actually litigated the issue of jurisdiction in Canada, the Canadian court’s decision on that issue was res judicata and could not be relitigated. There are apparently Illinois precedents on point, but the cases across the country are divided. Here is what the Restatement has to say:
If the defendant appeared in the foreign court to challenge the jurisdiction of the court and failed to prevail, it is not clear whether such determination will be considered res judicata by a court in the United States asked to recognize the resulting judgment. If the determination of jurisdiction depended on a finding of fact to support an otherwise unobjectionable basis of jurisdiction — for example, whether X was an agent through whom the defendant did business in the forum state — the determination after contest ordinarily will be respected. See § 481, Reporters’ Note 3. If the determination depended on a question of law or a mixed law/fact question — for example, whether a nonresident corporation is present in the forum state by virtue of having an “alter ego” subsidiary there — the court asked to recognize the resulting judgment will scrutinize the jurisdictional determination on its merits. See Reporters’ Note 3. If the judgment of the foreign court is founded on a basis of jurisdiction not meeting the standards of § 421 — for instance, the plaintiff’s nationality under Article 14 of the French Civil Code — but another basis of jurisdiction would have supported the action — for instance, that the action grew out of an activity of the defendant conducted in the territory of the forum, § 421(i) — a court in the United States may recognize and enforce the judgment. See § 481, Reporters’ Note 4.
Restatement (Third) of the Foreign Relations Law of the United States § 482 cmt. c.
The jurisdictional point was the only interesting point in the opinion. Once it was clear that that issue could not be relitigated, the rest of the decision followed. The Canadian court’s decision on the merits of the insurance coverage issue was also res judicata, so the appeal was successful.