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Even the Great Wall of China Can’t Hide a U.S. Distributor in a Product Defect Lawsuit

150401_China_ProdLiabBlogThe Illinois First District Appellate Court recently held that a U.S. distributor cannot escape liability under the Illinois Distributor Release Statute if the plaintiff was unable to obtain jurisdiction over a Chinese defendant against which a default judgment was issued.

In Chraca v. U.S. Battery Manufacturing Company and Yuhuan County Litian Metal Products Company, Ltd.,  the plaintiff filed a strict product liability suit against the distributor of a Chinese-made battery after a defective strap broke while he was carrying the 63-pound battery causing him serious injury. The plaintiff initially sued the distributor, U.S. Battery Manufacturing Company (U.S. Battery), which sought a dismissal under 735 ILCS 5/2-621(b), which allows a distributor to escape a strict products liability claim if it identifies the manufacturer of the product and establishes that it did not exercise any control over the design or manufacture of the product, had no knowledge of the defect and did not create the defect.

U.S. Battery identified the manufacturer as Yuhuan County Litian Metal Products Company, Ltd. (Yuhuan) and sought a dismissal under the statute after it established that it did not exercise significant control over the design or manufacture of the product, had no knowledge of the defect of the product, and did not create the defect in the product. Thereafter, the plaintiff filed an amended complaint adding Yuhuan and serving it through The Hague Convention in China. Yuhuan did not appear in the action despite proper service and a default judgment entered against it.

Shortly thereafter, Chraca filed a motion to reinstate its claim against U.S. Battery arguing that under 735 ILCS 5/2-621(b):

Plaintiff may at any time subsequent to the dismissal move to vacate the order of dismissal and reinstate the certified defendant or defendants provided plaintiff can show one or more of the following … (3) that the manufacturer no longer exists, cannot be subject to the jurisdiction of the courts of this state, or despite due diligence, the manufacturer is not amenable to service process; or (4) that the manufacturer is unable to satisfy any judgment as determined by the court.

In its opposition to the motion to reinstate, U.S. Battery argued that the manufacturer, Yuhuan, was still in business and that there was no evidence that the manufacturer was “unable” to satisfy the judgment. The court denied the plaintiff’s motion to reinstate, finding that it had previously argued and relied on service of process to obtain the default judgment, yet now was contending that the court lacked jurisdiction over the Chinese defendant. Furthermore, the court noted that while it might be “difficult” for the plaintiff to collect on the judgment, difficulty was not one of the statutory criteria for reinstatement.

The plaintiff subsequently appealed to the Illinois First District Appellate Court, arguing that the trial court erred in dismissing its motion to reinstate U.S. Battery. The Appellate Court agreed with U.S. Battery’s position that the plaintiff had not established that Yuhuan was unable to satisfy any judgment. The court relied on the fact that the plaintiff presented no evidence about Yuhuan’s financial viability but, to the contrary, the evidence established that it was a viable ongoing entity doing business in China.

With respect to the plaintiff’s second argument that it was not able to obtain jurisdiction over Yuhuan, the Appellate Court agreed with the plaintiff, finding that the record established that Yuhuan could not be subject to the jurisdiction of the Illinois court. The court relied on the finding that Yuhuan placed its products into the stream of commerce in China, but took no action to place it into the hands of Illinois consumers. Relying on J. McIntyre Machinery v. Nicastro, 131 S.Ct. 278 (2011), the court concluded that Yuhuan took no steps to purposely avail itself of the privilege of conducting activities within the State of Illinois as there was no indication that the manufacturer had any connection on its own with Illinois and did not sell or ship its products to Illinois, nor did it otherwise market its products in Illinois. Accordingly, the Illinois Appellate Court found that the plaintiff had met his burden of showing and that the certifying defendant, U.S. Battery, should be reinstated as an active defendant in the case.

The lesson learned from this case is that a U.S. distributor of a foreign product should not assume that it will be automatically dismissed from a lawsuit. Rather, the distributor should fashion its business practices and contracts in such a manner that it protects itself.

This blog post was published originally on April 1, 2015.