Avoiding Reinstatement of Distributors in Illinois Product Liability Suits

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Retailers can be reinstated into product liability suits through the Illinois Distributors’ Statute. They can protect their interests by being more specific in purchasing contracts and requiring insurance in the United States as seen in Chraca v. U.S. Battery Mfg. Co., 2014 IL App (1st) 132325. In that case, the plaintiff sued the American distributor of a flexible strap used to help carry golf cart batteries in a strict-liability action after the strap malfunctioned.  However, the strap was made by a Chinese manufacturer. The plaintiff subsequently filed an amended complaint that also included the Chinese manufacturer.  Later, the court granted default judgment against the Chinese manufacturer.

The distributor moved for dismissal based on the Illinois Distributors’ Statute. Although the plaintiff claimed there would be no way to collect on the default judgment, the court dismissed the American distributor. The plaintiff responded by filing a motion to reinstate the American distributor under the Distributors’ Statute, claiming that the manufacturer no longer existed as defined by the statute and was “unable to satisfy any judgment as determined by the court.” The plaintiff argued that he only needed to show that it “appeared” there was no jurisdiction or that it would be “fruitless” to pursue an action. The circuit court disagreed and denied the plaintiff’s motion stating that a mere difficulty in obtaining a judgment was not part of the statutory requirement.

On appeal, the appellate court was asked to determine whether the Chinese manufacturer was unable to satisfy a judgment and whether it was subject to personal jurisdiction. The appellate court first noted that the Chinese manufacturer could not be considered “unable to satisfy any judgment.” In Illinois, a company is only deemed to be “unable to satisfy any judgment” when it is bankrupt or nonexistent. Although the plaintiff was able to provide evidence that it would be difficult in enforcing the judgment, all information showed that the Chinese manufacturer was an ongoing business. Therefore the appellate court could not deem that it was “unable to satisfy any judgment.”

Although the appellate court disagreed with the plaintiff on whether the Chinese manufacturer could satisfy a judgment, it overturned the circuit court opinion based on a lack of personal jurisdiction over the Chinese manufacturer. The Chinese manufacturer merely placed the product in the stream of commerce, but did not target Illinois as a market for the product to be sold. The court ruled that the plaintiff provided enough evidence to show that the Illinois market was not targeted and therefore it was appropriate to reinstate the distributor under the terms of the Distributors’ Statute.

As a result of the court’s opinion in Chraca, distributors who desire more certainty in their legal obligations should seek protection first before distributing a product. First, a distributor should identify foreign manufacturers with a U.S. subsidiary or U.S. based product distribution network in purchasing contracts. Secondly, the distributor should make sure the manufacturer includes the distributor as an additional insured under its product liability policy. Lastly, if possible, the distributor should require that the manufacturer obtain insurance from companies that do regular business within the U.S. and insure U.S. risks. Although the Chraca decision may frustrate distributors, there is still a framework to follow in order to diminish future risk.

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