Chalek v. Klein – Case Brief
Chalek v. Klein, 193 Ill. App. 3d 767, 550 N.E.2d 645 (1990).
Facts: Chalek (P) operated as a sole proprietorship in Illinois and sold computer software for commodities trading. Lee (D1, California resident), saw an ad for the software in a magazine and ordered it by telephone for $3,500. Klein (D2, New York resident) read about the software in a magazine, requested information, and purchased the software for $3,000 by sending an order form with a check to Chalek’s office in Illinois. Lee and Klein later returned the software and stopped payment on their checks.
Chalek brought suit in Illinois state court and served Lee with process in California and Klein in New York. The defendants entered motions to dismiss for lack of personal jurisdiction. The trial court granted the motions and Chalek appealed.
Issue: Under what circumstances will a party who orders a product in another state by telephone or mail be subject to personal jurisdiction in that state?
Holding and Rule: The act of placing an order by mail or telephone and accepting the seller’s price as stated in advertising or other forms of solicitation is not a sufficient minimum contact to allow personal jurisdiction over a passive purchaser in the state of the seller. If the buyer departs from a passive role by dictating or vigorously negotiating contract terms or by inspecting production facilities, the active purchaser will be subject to personal jurisdiction in the courts of the seller’s state.
Due process requires that a court distinguish between active and passive purchasers of goods before finding personal jurisdiction over an out of state purchaser. Even if a state’s long arm statute permits the exercise of jurisdiction over a nonresident defendant, such an exercise must also be consistent with the Due Process Clause which limits the power of state courts to enter judgments against nonresident defendants.
In Burger King Corp. v. Rudzewicz, the Supreme Court held that the mere fact that an individual has entered into a contract with a resident of the forum state is not sufficient by itself to allow the courts in that state to exercise in personam jurisdiction over the individual. The Court held that the Due Process Clause prohibits the enforcement of rules that would unfairly permit sellers to obtain default judgments against unwitting customers.
Public Policy: Distinguishing between active and passive purchasers protects the ordinary mail order consumer who orders merchandise from a company in a distant state from having to submit to the jurisdiction of the courts of that state. It also protects sellers who manufacture custom-built products according to the specifications of nonresident buyers.
In this case Lee and Klein are classic passive purchasers who merely ordered a product from an Illinois business. There is no evidence that they negotiated the terms of their agreements, came to Illinois to inspect Chalek’s facilities, or in any other way departed from the role of a passive buyer.
Disposition: Affirmed.
Notes: It is important to note that the agreement between the parties in this case did not include a forum selection clause. Nearly every software product today contains an end user license agreement (EULA) containing a forum selection clause. Sellers can thereby avoid the personal jurisdiction issue presented in this case.