Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

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ILLINOIS BELL v. GLOBAL NAPS ILLINOIS (December 22, 2008)

Illinois Bell (“Bell”) alleged that Global NAPs Illinois (“GNI”) violated Bell’s federal tariffs, its state tariffs, and the interconnection agreement between them. Bell named as defendants GNI, its parent Ferrous Miner Holdings (“FMH”), and four other affiliated companies. The district court found it did not have personal jurisdiction over FMH and that Bell’s evidence of a “piercing the corporate veil” theory was not sufficient to confer that jurisdiction. The court dismissed FMH and entered a Rule 54(b) final judgment. Bell appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Evans reversed and remanded. The Court first addressed a threshold jurisdictional issue. Bell asserted that federal jurisdiction existed under federal question jurisdiction – as a suit to enforce a federal tariff – and under diversity jurisdiction – as a suit between an Illinois corporation and non-Illinois parties. Although either would be sufficient to maintain the action, the Court addressed both. It noted that jurisdiction of the state law claims would be mandatory under diversity jurisdiction but merely discretionary under federal question jurisdiction. The Court quickly resolved the issue of diversity. GNI claimed that its principal place of business was Illinois because it was the only state where it was licensed to do business and had interconnection facilities. It is the location of the “nerve center” that constitutes a company’s principal place of business, said the Court. GNI admitted it had no office or employees in Illinois. Its principal place of business was Massachusetts – complete diversity existed. The Court then rejected GNI’s argument that the integration clause of the interconnection agreement foreclosed federal question jurisdiction. Although supposing that a broader integration clause could convert a federal tariff claim into a state contract claim, the Court found the integration clause between Bell and GNI too narrow to do so. In any event, its conversion into a contract claim would not affect jurisdiction. Under the well-pleaded complaint rule, the suit to enforce a federal tariff would arise under federal law.

The Court engaged in a lengthy discussion regarding the merits of a “primary jurisdiction” referral to the Illinois Commerce Commission. The Court believed that the interpretation of the interconnection agreement should be conducted there, while the federal court stayed its proceedings. However, the Court determined that referral to be premature. The Court felt obligated to first address the piercing the corporate veil issue. The Court determined that the district court misunderstood the parties’ positions. The district court addressed whether FMH’s “veil” could be pierced – but Bell wanted to pierce the veil of GNI to get to FMH. FMH argued that Bell had to prove fraud. The Court held otherwise. Delaware law permits piercing the veil upon proof of fraud or that the corporation was a mere facade. FMH did not deny that GNI had no assets. The Court concluded that Bell had produced enough evidence to bring FMH within the personal jurisdiction of the court – so that the court could determine whether to pierce its veil.