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Mellon First United Leasing v. Hansen, No. 2-98-0307 2nd Dist. 12/30/98 |
No. 2--98--0307
December 30, 1998
____________________________________________________________ _____
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
____________________________________________________________
_____
Plaintiff-Appellant, v. ELEANOR S. HANSEN, Indiv. and d/b/a Eleanor Hansen, C.P.A., Defendant-Appellee. of Lake County. No. 97--SC--3900 Honorable E. Thomas Lang, Judge,
Presiding. JUSTICE INGLIS delivered the opinion of the court:
Plaintiff, Mellon First United Leasing (Mellon),
timely appeals the circuit court's order of February 26, 1998, granting the
section 2--619 motion of defendant, Eleanor S. Hansen, d/b/a Eleanor Hansen,
C.P.A., to dismiss this small claims action for lack of personal jurisdiction.
See 735 ILCS 5/2--619 (West 1996). We affirm. On October 30, 1997, plaintiff, an Illinois division
of Mellon Leasing Corporation, the successor in interest to FUL, Inc., filed a
small claims complaint alleging that defendant, a resident of California,
entered into a mailing equipment lease agreement in October 1993. The complaint
alleged that, under the terms of the lease, defendant consented to jurisdiction
in Lake County, Illinois, and that the lease was to be interpreted in accordance
with Illinois law. Under the lease agreement, defendant was to pay defendant
$135.30 per month for 60 months. The complaint alleged that defendant failed to
make her monthly payments, was indebted to plaintiff in the amount of $3,810.91,
and owed certain amounts for attorney fees and interest. Defendant filed a special and limited appearance.
She moved to quash and dismiss the action, arguing that, as a California
resident, she did not have sufficient contacts with the State of Illinois to
satisfy the due process requirements for the exercise of jurisdiction. She
asserted she would suffer extreme inconvenience if she were forced to litigate
this matter in Illinois and would effectively be denied her day in court.
Defendant averred that she had not been present in Illinois in 17 years. The
negotiations took place in California between her and a sales representative of
plaintiff. The only contacts with Illinois were that the lease documents were
sent to an Illinois office for approval and defendant sent the payments to
Illinois. She further argued that the forum selection clause in the lease was
not a negotiated or agreed-upon term of the lease and was not discussed.
In her motion, defendant stated that it was only
after the essentials of the agreement were agreed upon (such as the type of
equipment, terms of the lease, and the amount of the payments) that she went to
the San Francisco office of the sales company to sign the document. No mention
was ever made of the forum selection clause, and she was not given a copy of the
lease until years later. The forum selection clause is located on the back page
of a preprinted form in small typeface. She argued that the agreement was an
adhesion contract. She was not aware of the forum selection clause and was not
in a position to bargain regarding the printed lease terms even if she had been
made aware of the clause. She concluded that the clause does not supply the
necessary contacts with Illinois to establish jurisdiction in this forum.
In her supporting affidavit, defendant states she is
a resident of California and has never been in Lake County, Illinois. In August
or September 1993, she began to investigate the purchase or lease of a postage
meter machine for her newly formed business-- rendering services as a certified
public accountant. She became aware of a company known as Better Office Systems,
Inc. (BOS), that engaged in the sale and leasing of office machinery. To the
best of her knowledge, BOS only did business out of its office in the San
Francisco Bay area. In September 1993, defendant negotiated the lease
agreement for the postage meter with Patrick O'Keefe, an employee of BOS. The
only terms discussed or agreed upon were the brand of machinery, the length of
the lease, the payments, and the disposition of the machinery upon the
conclusion of the lease. She did not negotiate with Ascom Hasler Leasing, FUL,
Inc., Mellon First United Leasing, or Mellon Leasing Corporation. On September
14, 1993, defendant went to the San Francisco office of BOS and executed the
lease agreement. She did not read or was not made aware of the forum clause in
small print on the back page which provided that litigation pursuant to the
lease shall occur in Lake County, Illinois. She was not provided with a copy of
the lease until February 1996. She stated it would be an extreme hardship for
her to be required to travel to Lake County, Illinois, to defend against the
claim. Perry Schwartz, president of Mellon, stated in his
affidavit, that Mellon, the successor in interest to FUL, Inc., had its
principal place of business in Bannockburn, Lake County, Illinois. On September
21, 1993, FUL received the credit application of defendant which was approved by
Heather Zimmer, the assistant credit manager. The lease agreement was signed in
Illinois by Marcia Brey, who was authorized to enter into the lease on behalf of
the company. The money used to purchase the leased equipment was drawn from an
Illinois bank. From November 1993 through June 1997, defendant made monthly
lease payments to FUL in Lake County, Illinois. The hearing on defendant's motion to quash and
dismiss was held on February 26, 1998. In granting defendant's motion, the court
stated several factors key to its decision. Defendant was at all relevant times
a resident of California and was not within Illinois for any portion of the
transaction. The case involved a relatively small amount of money. The
underlying transaction was initially between defendant and a corporation located
in San Francisco, California. Prior to signing the lease agreement, defendant
did nothing to knowingly transact business with any person or entity having a
connection with Illinois. The terms of the lease were fully negotiated and
agreed upon between defendant and the San Francisco vendor. Prior to signing the
agreement, the documentation provided to defendant did not give any indication
whatsoever that defendant would be dealing with an Illinois corporation. The
credit application did not contain an Illinois address or even a telephone
number with an Illinois area code. After all the terms of the lease were agreed
upon, defendant went to the San Francisco office of the vendor to sign the
agreement. This was the first time that defendant was presented with a document
indicating that an Illinois corporation was involved in the underlying
transaction. It was a preprinted form, and the forum selection clause was on the
back page of the lease agreement and was not in large type. Defendant's
affidavit stated she did not read or was not made aware of the provision prior
to signing the agreement. Plaintiff did not present any contradictory
evidence. The court concluded that the forum selection clause was not a term
that was negotiated and agreed upon by the parties. The court determined that
Illinois courts lacked in personam jurisdiction over defendant; that
there were insufficient contacts with the State of Illinois to satisfy
traditional notions of fair play and substantial justice; and that it would be
unfair to force defendant to litigate this matter in Illinois--particularly
where the small amount at issue would likely make it cost prohibitive for
defendant to assert her defenses here. The court ruled that proper jurisdiction
would obtain in California where plaintiff transacts business and defendant
would have a fair opportunity to defend. We agree generally with the court's determinations.
We review a section 2--619 dismissal or a summary judgment ruling de
novo. English Co. v. Northwest Envirocon, Inc., 278 Ill. App. 3d
406, 410 (1996). We conclude that it would be unreasonable under the particular
circumstances to enforce the forum selection clause. "A forum selection clause
in a contract is prima facie valid and should be enforced unless the
opposing party shows that enforcement would be unreasonable under the
circumstances." Calanca v. D&S Manufacturing Co., 157 Ill. App. 3d
85, 87 (1987). It has been stated that, "in order to hold a forum selection
clause unenforceable, enforcement must contravene the strong public policy of
the forum or the chosen forum must be 'seriously inconvenient for the
trial of the action.' " (Emphasis in original.) Calanca, 157 Ill. App.
3d at 88, quoting The Bremen v. Zapata Off-Shore Co., 407 U.S. 1,
15-16, 32 L. Ed. 2d 513, 523-24, 92 S. Ct. 1907, 1916-17 (1972). If both parties freely enter into an agreement
contemplating such inconvenience should there be a dispute, one party cannot
successfully argue inconvenience as the reason for voiding the forum clause.
Maher & Associates, Inc. v. Quality Cabinets, 267 Ill. App. 3d 69,
74-75 (1994). A forum selection agreement reached through arm's-length
negotiation between experienced and sophisticated businessmen should be honored
by them and enforced by the courts, absent some compelling and countervailing
reason for not enforcing it. Calanca, 157 Ill. App. 3d at 88. A forum
selection clause contained in "boilerplate" language indicates unequal
bargaining power, and the significance of the provision is greatly reduced. See
Williams v. Illinois State Scholarship Comm'n, 139 Ill. 2d 24, 72
(1990). Factors that the courts have considered in
determining whether to enforce such clauses include (1) which law governs the
formation and construction of the contract; (2) the residency of the parties;
(3) the place of execution and/or performance of the contract; (4) the location
of the parties and the witnesses participating in the litigation; (5) the
inconvenience to the parties of any particular location; and (6) whether the
clause was equally bargained for. Dace International, Inc. v. Apple
Computer, Inc., 275 Ill. App. 3d 234, 238 (1995). Another factor that may
be considered is whether the contract involves an unsophisticated consumer in a
small transaction in the marketplace. Dace, 275 Ill. App. 3d at 241.
We decline to disturb the decision of the trial
court. The record before us is limited. Based on the pleadings, the exhibits,
the affidavits, and the findings of the court, we conclude that the facts
available from this record militate against enforcing the forum selection
clause. First, it does not appear that the clause was reached through arm's
length negotiation between experienced businesspersons of the same stature.
Rather, it was part of boilerplate language in small print on the back of a
preprinted form used by plaintiff in its lease agreements. The agreement is more
like an adhesion contract. Plaintiff presented no contradictory evidence that
this term was bargained for or that there was any direct negotiation of the
terms with the Illinois plaintiff. From the facts gleaned in this record, it
appears that defendant is more akin to an ordinary consumer involved in a small
transaction than a sophisticated businessperson of stature equal to the leasing
company. Defendant apparently had a newly organized proprietary business where
she functioned as a certified public accountant. She is not in the office
equipment business, and there is no indication that she would have any
particular expertise or equivalent bargaining power with respect to this type of
office equipment business. Defendant completed the negotiations for the lease
with a San Francisco vendor and had no reason, until the last moment, to believe
she would be dealing with an Illinois corporation should there be a legal
dispute. She filled out a credit application that gave no indication that she
was dealing with an Illinois corporation. The clause was not equally bargained
for. The parties have not disputed the application of
Illinois law to this matter. Defendant is a resident of California and has not
set foot in Illinois for any part of this transaction, and she does business in
California. She obtained the equipment to use in California. There is no
indication that she does business in Illinois. She executed the documents in
California that were presumably forwarded to plaintiff for approval. Plaintiff
clearly does business through a vendor in California and received the completed
credit application, including the vendor information, from California. The
residency factor weighs in favor of defendant as does the location of the
parties and the witnesses that would be participating in the litigation.
Similarly, the inconvenience would appear to be
greater to defendant in requiring her to travel to Illinois solely to defend
against a small claim while it also appears that plaintiff does business through
a vendor located in California. We believe it would be unfair and unreasonable
to require defendant to litigate this small claim in Illinois. We have determined that the forum selection clause
should not be enforced and does not serve as the basis to invoke Illinois
jurisdiction. We next consider plaintiff's argument that jurisdiction may
nevertheless be invoked pursuant to the Illinois long-arm statute because
defendant has submitted to Illinois jurisdiction by virtue of the "transaction
of business" in Illinois or the "making or performance of any contract or
promise substantially connected with this State." See 735 ILCS 5/2--209 (1), (7)
(West 1992). Citing an older Illinois case containing a vigorous dissent,
First Professional Leasing Co. v. Rappold, 23 Ill. App. 3d 420 (1974),
plaintiff argues that the long-arm statute and the constitutional "minimum
contacts" test were satisfied. Here, as in Rappold, a California
defendant entered into a lease contract accepted by an Illinois corporation, an
Illinois company provided the funds, and defendant was to remit payments to the
Illinois corporation. While this case has similarities with Rappold, we
do not find it persuasive, and we decline to follow it. Dissenting Justice Smith
concluded that the execution of an equipment lease agreement in Illinois, which
was also executed in California by a California resident who mailed it to
Illinois along with payments, did not meet the due process "minimum contacts"
test. Rappold, 23 Ill. App. 3d at 425-26 (Smith, J., dissenting). More
recent cases examine the nature of the contract, the extent of defendant's
activities in connection with this state, and the facts and circumstances
surrounding the transaction. See, e.g., Northern Trust Co. v.
Randolph C. Dillon, Inc., 558 F. Supp. 1118 (N.D. Ill. 1983) (Illinois
lessor's acceptance of lease which had been partially executed in California and
sending of lease payments to Illinois did not suffice to confer personal
jurisdiction over nonresident defendants). When invoking long-arm jurisdiction, the plaintiff
has the burden of showing that there is a valid basis for jurisdiction over the
defendant. Poplar Grove State Bank v. Powers, 218 Ill. App. 3d 509, 517
(1991). In deciding whether jurisdiction obtains over a nonresident defendant,
courts consider whether jurisdiction is proper under the long-arm statute and
also whether jurisdiction is permissible under constitutional due process
standards. The analysis may begin with either step, and if the court finds the
constitutional test more readily applicable, it need not determine whether the
defendant's activities meet the requirements of the long-arm statute. See
Stein v. Rio Parismina Lodge, 296 Ill. App. 3d 520, 524 (1998). Where
the exercise of jurisdiction would not comport with the requirements of
constitutional due process, a court must dismiss the action for want of
jurisdiction. Stein, 296 Ill. App. 3d at 524. Our supreme court has clearly dispelled any
suggestion that, once a court finds a nonresident has committed any act that
falls within the provisions of the long-arm statute, Illinois' jurisdictional
standards have been satisfied and all that remains is for the court to determine
if jurisdiction comports with the federal due process standards. Rollins v.
Ellwood, 141 Ill. 2d 244, 274 (1990). Rollins instructs us that
Illinois courts are not to consider only the literal meaning of the text of the
long-arm statute or the evolving federal constitutional standards of due
process; they must consider the constraints imposed by the Illinois
Constitution's guarantee of due process. Rollins, 141 Ill. 2d at 275.
Under the federal due process standard, a defendant is not subject to a judgment
in personam in the forum state unless he has certain minimum contacts
with that state such that bringing the action there does not offend traditional
notions of fair play and substantial justice. Chalek v. Klein, 193 Ill.
App. 3d 767, 770 (1990). Under the Illinois constitutional standard,
jurisdiction is to be asserted "only when it is fair, just, and reasonable to
require a nonresident defendant to defend an action in Illinois, considering the
quality and nature of the defendant's acts which occur in Illinois or which
affect interests located in Illinois." Rollins, 141 Ill. 2d at 275; see
Sackett Enterprises, Inc. v. Staren, 211 Ill. App. 3d 997, 1004 (1991).
The focus is on the defendant's activities within the forum state, not those of
the plaintiff. Sackett, 211 Ill. App. 3d at 1004. Where a nonresident merely enters into a contract
with a resident of the forum state, this fact is not sufficient by itself to
subject the nonresident to the in personam jurisdiction of the forum
state. See Chalek v. Klein, 193 Ill. App. 3d at 772; see also Ideal
Insurance Agency, Inc. v. Shipyard Marine, Inc., 213 Ill. App. 3d 675, 682
(1991) ("the mere execution of a contract within Illinois is not by itself a
sufficient transaction of business to fit within the long-arm statute"). Thus,
"if the nonresident buyer is a passive party who merely places an order by mail,
telephone, or to a salesperson and accepts the seller's price" through some form
of solicitation, "the courts of the seller State will not be able to exercise
in personam jurisdiction over the buyer." Chalek, 193 Ill.
App. 3d at 773. "If the buyer departs from a passive role by dictating or
vigorously negotiating contract terms or by inspecting production facilities" in
Illinois, the buyer may be characterized as an active buyer subject to personal
jurisdiction in this state. Chalek, 193 Ill. App. 3d at 773. "The type
of conduct which would characterize an active purchaser is far more typical in
dealings between major business organizations than in transactions in which a
consumer or even a small shopkeeper is the purchaser." Chalek, 193 Ill.
App. 3d at 773. Defendant is analogous to the passive, small
shopkeeper purchaser described in Chalek. Here, defendant entered into
the lease agreement with a vendor in California, placed an order for a postage
meter machine, and agreed to the price and the eventual disposition of the
equipment. She executed the documents there and obtained and used the equipment
there. She did not dictate the terms of the agreement to the Illinois plaintiff;
rather, the contract is a preprinted form contract drafted by the plaintiff
lessor, and it dictates nearly all of the terms using boilerplate language.
Defendant never set foot in Illinois. Her only
connection with Illinois included correspondence--forwarding the documents,
presumably through the California vendor, for approval in Illinois and sending
payments to an Illinois office. These actions are insufficient to satisfy the
"minimum contacts" due process standard and, moreover, do not amount to the
transaction of business in Illinois for in personam jurisdictional
purposes. See American Funeral Computer Service, Inc. v. Floyd, 165
Ill. App. 3d 309, 312 (1988); Artoe v. Mann, 36 Ill. App. 3d 204, 206
(1976) (where negotiations by plaintiff took place in California, mere placement
of order by California defendants through mails to Illinois plaintiff for
equipment to be installed in California did not satisfy minimum contact
requirements of long-arm statute; subjecting defendants to Illinois jurisdiction
would violate traditional notions of fair play and substantial justice); see
also Konicki v. Wirta, 169 Ill. App. 3d 21 (1988) (California residents
who negotiated and purchased condominium in California that secured note
providing for payment to Illinois holder of note did not have sufficient
contacts with Illinois for personal jurisdiction under long-arm statute,
notwithstanding telephone calls and correspondence with Illinois
plaintiff-holder of note); see also Northern Trust Co. v. Randolph C.
Dillon, Inc., 558 F. Supp. 1118 (N.D. Ill. 1983) (Illinois lessor; payments
sent to Illinois by nonresident defendants). Under the Illinois constitutional standard found in
Rollins, we also do not find that, under the facts presented, it is
fair, just, and reasonable to require this nonresident defendant to defend a
small claims action in Illinois, considering the quality and nature of her acts
in relation to this forum and this plaintiff. Rollins, 141 Ill. 2d at
275. We conclude that plaintiff did not meet its burden of showing that
defendant is subject to personal jurisdiction in Illinois. For the foregoing reasons, we affirm the judgment of
the circuit court of Lake County. Affirmed. McLAREN and RATHJE, JJ.,
concur.
MELLON FIRST UNITED LEASING,
Appeal from the Circuit
Court