Mepco Finance Corporation et al v. Warranty Administration Services
Filing
26
WRITTEN Opinion entered by the Honorable James B. Zagel on 7/3/2012: The Individual Defendants' Motion to Vacate Default and Judgment 19 is DENIED. Status hearing set for 7/20/2012 is stricken. Mailed notice (tlm)
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Order Form (01/2005)
United States District Court, Northern District of Illinois
Name of Assigned Judge
or Magistrate Judge
Judge Zagel
Sitting Judge if Other
than Assigned Judge
CASE NUMBER
11 CV 2919
DATE
CASE
TITLE
July 3, 2012
MEPCO FIN. CORP. V. WARRANTY ADMIN. SERVS., INC. d/b/a CONSUMER
DIRECT WARRANTY SERVS.
DOCKET ENTRY TEXT:
The Individual Defendants’ Motion to Vacate Default and Judgment [19] is DENIED. Status hearing set for
7/20/2012 is stricken.
STATEMENT
Plaintiff Mepco Finance Corporation (“Mepco”), a Michigan company with its principal place of
business in Illinois, services payment plan programs for consumer purchasers of product warranties. One
type of warranty with which Mepco deals is the warranty to cover repairs on vehicles after the consumer
purchasers use engine additives or other products. The warranties themselves are actually written by
“administrators,” who sell the warranties through actual vendors, or “sellers.” Under written agreements,
Mepco provides up-front funding to both administrators and sellers, who agree to repay the funding after they
actually sell warranties to individual consumers. This financing arrangement permits the sellers to set up
monthly installment payments with the consumers rather than enforcing a lump sum payment.
According to a complaint filed May 2, 2011, Mepco entered into such an agreement with the corporate
defendant Warranty Administration Services, d/b/a Consumer Direct Warranty Services (“CDWS”). The
complaint also named two individuals as defendants. Defendant Robert Lewis Chapman is CDWS’s
President and CEO. Defendant James Carl Sletner is the company’s Vice President and CFO. Together, they
comprise the entirety of CDWS’s executive suite. The two combined are the only shareholders in the
company. Chapman and Sletner are residents of California. CDWS is a Nevada corporation with its
principal place of business in California.
The complaint and later briefing state that in 2007, Chapman and Sletner conducted a search for
funding for CDWS’s warranty servicing operations. That search led them to Mepco, with its principal place
of business in Chicago, Illinois. After “numerous conversations” with Mepco personnel, Chapman and
Sletner decided to have CDWS enter into the agreement with Mepco. The agreement has a forum selection
clause indicating Illinois as the forum for any disputes. After entering the agreement and getting its funding,
CDWS sold 1,193 warranty products in Illinois, generating over $1 million in revenue.1
The complaint alleges that CDWS breached its written promise to repay funds owed to Mepco. It
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STATEMENT
further alleged fraudulent transfer of funds, breach of fiduciary duty, and unlawful distribution. The latter
three charges all relate to an allegation that Chapman and Sletner systematically looted the company of more
than $7 million in funds, leaving it unable to pay its corporate obligations.
Neither the corporate nor individual Defendants appeared, answered, or otherwise plead, so a default
order was entered on June 15, 2011. Judgment followed on August 18, 2011. Several months later, on
March 27, 2012, Individual Defendants Chapman and Sletner moved under Rule 60(b)(4) to vacate the
default order and judgment as to them and to dismiss the case for want of personal jurisdiction.
“On motion and just terms, the court may relieve a party or its legal representative from a final
judgment, order, or proceeding” if, among other reasons, the “judgment is void.” Fed. R. Civ. P. 60(b)(4).
One type of void judgment is one for which the court has no personal jurisdiction over the defendant. When,
as here, a defendant defaults on a complaint to and seeks to void a judgment under Rule 60(b)(4), that
defendant bears the burden of proving that the court lacked jurisdiction over him. Philos Techs., Inc. v.
Philos & D, Inc., 645 F.3d 851, 857 (7th Cir. 2011) (contrasting 60(b)(4) standard with burden of proof if
personal jurisdiction raised by Rule 12 motion at outset of case).
Here, not only have Defendants failed to carry their burden, but it is clear from the briefs and other
submissions that this court has personal jurisdiction over them. Defendants’ main argument in disputing
personal jurisdiction comes under the “fiduciary shield doctrine.” This doctrine holds that “a court cannot
exercise jurisdiction over a nonresident defendant who has performed acts in Illinois solely as a representative
of his employer, and not for his personal benefit.” Glass v. Kemper Corp., 930 F. Supp. 332, 340 (N.D. Ill.
1996) (citing Rollins v. Ellwood, 565 N.E.2d 1302,1316 (Ill. 1990)). Defendants argue that while CDWS
may have contacts with Illinois, they were merely individual employees of the corporation and otherwise had
no ties to Illinois.
It is the last, qualifying clause of the doctrine that permits personal jurisdiction to attach in this case.
As the Seventh Circuit has stated in a case discussing the fiduciary shield doctrine, “[t]he shield is withdrawn
if the agent was acting also or instead on his own behalf - to ‘serve personal interests.’” Rice v. Nova
Biomedical Corp., 38 F.3d 909, 912 (7th Cir. 1994) (quoting Rollins, 565 N.E.2d at 1318). “‘[P]ersonal gain,
discretionary actions, and ownership of most of a corporation's stock,’ all bear on the issue of whether a
defendant's ‘conduct in Illinois was a product of, and was motivated by, his employment situation and not his
personal interests.’” Femal v. Square D Co., 903 N.E.2d 32, 38 (Ill. App. Ct. 2009). Here, the individual
Defendants were the sole officers in CDWS. Between them, they owned 100% of the outstanding shares in
the entity. There could be no major CDWS corporate action without their pursuit and approval, and
effectively all of the benefit of such action inured to them given their equity in CDWS.
This case presents a near-paradigmatic example of when to lower the fiduciary shield. With that
shield lowered, CDWS’s contacts with Illinois (which are ample and undisputed) attach to the Individual
Defendants.
The rest of the Individual Defendants’ arguments sound in the merits of the case. As Plaintiff has
rightly stated, the time for such arguments has long passed. See Bally Export Corp. v. Balicar, 804 F.2d 398,
403 (7th Cir. 1986) (declining to consider substantive defenses to contract in Rule 60(b)(4) context).
The Rule 60(b)(4) motion is DENIED and the judgment in this case is to remain in effect.
1. That CDWS is subject to jurisdiction in Illinois is undisputed (and indisputable).
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