Fdasmart, Inc. v. Dishman Pharmaceuticals (L-7832-13, Middlesex County and Statewide) , 448 N.J. Super. 195 ( 2016 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2800-15T3
FDASMART, INC.,
APPROVED FOR PUBLICATION
Plaintiff-Respondent,
December 29, 2016
v.
APPELLATE DIVISION
DISHMAN PHARMACEUTICALS AND
CHEMICALS LIMITED and DISHMAN
USA, INC.,
Defendants-Appellants.
_______________________________
Argued November 28, 2016 – Decided December 29, 2016
Before Judges Nugent, Haas, and Currier.
On appeal from the Superior Court of New
Jersey, Law Division, Middlesex County,
Docket No. L-7832-13.
Kim M. Watterson (Reed Smith LLP) of the
Pennsylvania bar, admitted pro hac vice,
argued the cause for appellants (Reed Smith
LLP, attorneys; Daniel Mateo and Amy
McVeigh, on the briefs).
James D. Young argued the cause for
respondent (Fox Rothschild LLP, attorneys;
Mr. Young and Steven J. Daroci, on the
brief).
The opinion of the court was delivered by
CURRIER, J.A.D.
In this contract action, we must determine whether personal
jurisdiction was properly found, thus permitting the suit
against defendants to proceed in New Jersey. Because we find
that New Jersey does not have either specific or general
jurisdiction over defendant Dishman Pharmaceuticals and
Chemicals, LTD (DPCL), we reverse the grant of summary judgment.
We affirm the trial judge's finding that plaintiff FDASmart,
Inc. has stated a viable claim against defendant Dishman USA,
Inc., and therefore, remand for further proceedings.
DPCL, an Indian corporation with its principal place of
business in Ahmedabad, Gujarat State, India, manufactures active
ingredients used to make pharmaceutical products. Dishman USA,
a New Jersey corporation, is a wholly owned subsidiary of DPCL
and has its principal place of business in Middlesex, New
Jersey. Jason Bertola is the head of Dishman USA and is
responsible for its day-to-day operations. Plaintiff is a
Delaware corporation with its principal place of business in
Amawalk, New York.
In 2013, PKM, an Indian company in the business of advising
clients on mergers and acquisitions, contacted plaintiff about
discussing with DPCL the potential sale of a pharmaceutical
manufacturing facility owned by DPCL's Chinese subsidiary in
China. The three companies met in India and subsequently
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entered into a Memorandum of Understanding (MOU). Plaintiff and
PKM were identified in the MOU as the "consulting party"; DPCL
would pay fees to the consulting party for the development of a
sales strategy, for any prospective buyers who visited the
plant, and ultimately, a success fee for the completed purchase.
Although the first two drafts of the MOU named DPCL as the
contracting party, the final draft listed Dishman Group1 as the
signatory, with DPCL's address. Janmejay Vyas, managing
director of DPCL, signed the document. The MOU was to be
"governed by and construed in accordance with laws of India." A
non-disclosure agreement was to be signed in India; fees were to
be paid "with applicable Indian taxes." The invoices that were
subsequently submitted under the MOU were sent to DPCL in India;
payments on the invoices were made by DPCL.
After a dispute arose concerning sales efforts, DPCL
decided not to sell its Chinese facility. Plaintiff presented a
final invoice to DPCL at its Indian address and declared its
intent to bring legal action in India. Thereafter, plaintiff
1
Dishman Group is a marketing term that refers to DPCL and its
subsidiaries; it is not a legal entity.
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filed suit against DPCL and Dishman USA in New Jersey, alleging
breach of contract and related claims.2
In lieu of filing an answer, defendants moved for a
dismissal of the action, asserting a lack of personal
jurisdiction, forum non conveniens, a failure to state a claim
against Dishman USA, and a failure to join PKM as a necessary
party. The trial judge denied the motion without prejudice, and
permitted the parties to engage in limited jurisdictional
discovery.
After the completion of discovery, plaintiff moved for
partial summary judgment on the jurisdictional issue; defendants
opposed the motion and renewed their application for dismissal.
Following oral argument, the judge granted plaintiff's partial
summary judgment motion, finding that (1) New Jersey had general
jurisdiction over defendant and was an appropriate forum; (2)
plaintiff had stated a claim against Dishman USA; and (3) PKM
was not an indispensable party.
On appeal, defendants argue that (1) DPCL is not subject to
personal jurisdiction in New Jersey because general jurisdiction
does not exist under an alter ego theory; (2) Dishman USA should
be dismissed because a claim upon which relief can be granted
2
PKM has filed a similar suit for breach of contract against
plaintiff and defendant in India.
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has not been stated; (3) the case should be dismissed under
forum non conveniens because the relevant dealings leading up to
the creation of the contract occurred in India; and (4) the case
should be dismissed because an indispensable party to the
original contract – PKM - is not present in the instant
litigation.
We review a grant of summary judgment under the same
standard as the motion judge. Rowe v. Mazel Thirty, LLC, 209
N.J. 35, 41 (2012). We must determine whether there are any
genuine issues of material fact when the evidence is viewed in
the light most favorable to the non-moving party. Id. at 38,
41. "[T]he legal conclusions undergirding the summary judgment
motion itself [are reviewed] on a plenary de novo basis."
Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369,
385 (2010).
After reviewing the record in light of the contentions
advanced on appeal, and the applicable legal principles, we are
constrained to reverse the trial judge's jurisdictional ruling.
To establish personal jurisdiction over a non-resident
defendant in conformance with due process, our courts follow the
two-part test developed in Int'l Shoe Co. v. Washington, 326
U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95, 102 (1945).
Under this test:
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[d]ue process requires only that in order to
subject a defendant to a judgment in
personam, if he be not present within the
territory of the forum, he have certain
minimum contacts with it such that the
maintenance of the suit does not offend
"traditional notions of fair play and
substantial justice."
[Lebel v. Everglades Marina, Inc., 115 N.J.
317, 322 (1989) (quoting Int'l Shoe, supra,
326 U.S. at 316, 66 S. Ct. at 158, 90 L. Ed.
at 102).]
Applying this test in a particular case requires a two-step
analysis.
The first part of the test, "minimum contacts," focuses on
"'the relationship among the defendant, the forum, and the
litigation,'" id. at 323 (quoting Shaffer v. Heitner, 433 U.S.
186, 204, 97 S. Ct. 2569, 2579, 53 L. Ed. 2d 683, 698 (1977)),
requiring "'some act by which the defendant purposefully avails
itself of the privilege of conducting activities within the
forum state, thus invoking the benefit and protection of its
laws.'" Waste Mgmt. Inc. v. Admiral Ins. Co., 138 N.J. 106, 120
(1994) (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S. Ct.
1228, 1240, 2 L. Ed. 2d 1283, 1298 (1958)), cert. denied, 513
U.S. 1183, 115 S. Ct. 1175, 130 L. Ed. 2d 1128 (1995).
Under this step a court must distinguish between specific
and general jurisdiction. The trial judge found that "the
nature and extent of [the] business relationship [between
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plaintiff and DPCL was] insufficient to establish specific
jurisdiction." We agree and therefore only address the issue of
general jurisdiction.
General jurisdiction is based on the defendant's continuous
and systematic activities in the forum. Lebel, supra, 115 N.J.
at 323. Defendant's activities must be "so 'continuous and
systematic' as to render [it] essentially at home in the forum
State." Daimler AG v. Bauman, ___ U.S. ___, ___, 134 S. Ct.
746, 754, 187 L. Ed. 2d 624, 633 (2014) (quoting Goodyear Dunlop
Tires Operations, S. A. v. Brown, 564 U.S. 915, 919, 131 S. Ct.
2846, 2851, 180 L. Ed. 2d 796, 803 (2011)). Typically, a
corporation's principal place of business and place of
incorporation establishes where the corporation is "at home" and
subject to general jurisdiction. See Goodyear, 564 U.S. at 924,
131 S. Ct. at 2853-54, 180 L. Ed. 2d at 806. The standard for
establishing general jurisdiction "is a difficult one to meet,
requiring extensive contacts between a defendant and a forum."
Mische v. Bracey's Supermarket, 420 N.J. Super. 487, 492 (App.
Div. 2011).
Once a court determines that a defendant's activities
establish minimum contacts with the forum, the court must then
inquire whether "fair play and substantial justice" support an
exercise of jurisdiction. This determination requires
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evaluation of factors such as "the burden on the defendant, the
interests of the forum State, and the plaintiff's interest in
obtaining relief." Lebel, supra, 115 N.J. at 328 (quoting Asahi
Metal Indus. Co. v. Superior Court of Cal., 480 U.S. 102, 113,
107 S. Ct. 1026, 1034, 94 L. Ed. 2d 92, 105 (1987)). In
addition, the court must consider "the interstate judicial
system's interest in obtaining the most efficient resolution of
controversies; and the shared interest of the several States in
furthering fundamental substantive social policies." Asahi,
supra, 480 U.S. at 113, 107 S. Ct. at 1033, 94 L. Ed. 2d at 105
(quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286,
292, 100 S. Ct. 559, 564, 62 L. Ed. 2d 490, 498 (1980)).
In beginning our review, it is undisputed that DPCL is not
"at home" in New Jersey; it is not incorporated in this state
nor is New Jersey its principal place of business. See Daimler,
supra, ___ U.S. at ___, 134 S. Ct. at 754, 187 L. Ed. at 633.
Therefore, plaintiff must show that defendant had continuous and
systematic contacts with New Jersey so as to justify it being
haled into New Jersey's courts.
Plaintiff persuaded the motion judge that the activities of
Dishman USA in New Jersey should be attributed to its parent
DPCL for jurisdictional purposes under an alter ego theory. We
disagree.
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We have held that the "forum contacts of a subsidiary
corporation will not be imputed to a parent corporation for
jurisdictional purposes without a showing of something more than
mere ownership." Pfundstein v. Omnicom Grp. Inc., 285 N.J.
Super. 245, 252 (App. Div. 1995). The alter ego theory is based
on the doctrine of piercing the corporate veil. To pierce the
corporate veil of a parent corporation, a party must establish
two elements: (1) the subsidiary was dominated by the parent
corporation, and (2) adherence to the fiction of separate
corporate existence would perpetrate a fraud or injustice, or
otherwise circumvent the law. State, Dept. of Envtl. Prot. v.
Ventron Corp., 94 N.J. 473, 500-01 (1983). To determine whether
the first element has been satisfied, courts consider whether
"the parent so dominated the subsidiary that it had no separate
existence but was merely a conduit for the parent." Ibid.
In considering the level of dominance exercised by the
parent over the subsidiary, the court will consider factors such
as "common ownership, financial dependency, interference with a
subsidiary's selection of personnel, disregard of corporate
formalities, and control over a subsidiary's marketing and
operational policies." Pfundstein, supra, 285 N.J. Super. at
253-54.
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In analyzing the Pfundstein factors, we are satisfied that
there is insufficient evidence presented to pierce the corporate
veil and impute Dishman USA's New Jersey contacts to DPCL. In
addressing the first factor, although there may be commonality
of ownership between the parent and subsidiary, we have held
that dominance "cannot be established by overlapping boards of
directors." Verni ex rel. Burstein v. Harry M. Stevens, Inc.,
387 N.J. Super. 160, 201 (App. Div. 2006).
Plaintiff argues that Dishman USA is "totally dependent" on
DPCL and therefore meets the second criteria. Although a
Dishman representative testified that the company barely meets
its expenses, the statement was made as an explanation as to why
it does not pay out dividends. Its ability to meet its expenses
confirms that Dishman USA is not financially dependent on its
parent and does not rely on DPCL to pay its salaries and
expenses.
The record does not contain any facts to satisfy the third
factor under which plaintiff must show that DPCL directly
interfered with Dishman USA's selection of its personnel. As to
the fourth factor, it is undisputed that the parent and
subsidiary are distinct equal entities that engage in arms-
length transactions in accordance with applicable tax laws.
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Finally, there are no proofs presented that DPCL controls its
subsidiary's marketing and operational policies.
We are satisfied that plaintiff is unable to meet its
burden of proving DPCL's dominance of its subsidiary in order to
pierce the corporate veil. As a result, we need not reach the
second requirement for satisfying the doctrine of piercing the
corporate veil, which requires proofs of fraud concerning the
creation of the subsidiary. As we have stated, "[w]here
individuals set up 'legitimate business structures to further
their personal and business plans' and 'do not use their
partnerships to commit fraud or defeat the ends of justice,' the
veil-piercing doctrine will not apply." Canter v. Lakewood of
Voorhees, 420 N.J. Super. 508, 522 (App. Div. 2011) (quoting
Shotmeyer v. N.J. Realty Title Ins. Co., 195 N.J. 72, 87
(2008)). Plaintiff has failed to present any such proofs.
We conclude that the trial judge erred in finding that
Dishman USA was essentially the same or the alter ego of DPCL in
order to assert general jurisdiction in New Jersey.
We also are unpersuaded by plaintiff's argument and
disagree with the trial judge's ruling that in personam
jurisdiction exists as a result of personal service of process
upon an employee of DPCL when he came to New Jersey for the
purpose of attending his deposition for this litigation. The
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judge erred in relying upon Rule 4:4-4(a)(6) as equating
personal service of process with securing long-arm jurisdiction
over DPCL. As noted in the comments to the Rule, Pressler &
Verniero, Current N.J. Court Rules, comment 1 on Rule 4:4-
4(a)(6), the various modes of service (a) "cannot be read as
mechanisms for obtaining long-arm jurisdiction unless the
underlying predicate of long-arm jurisdiction, adequate contact
with the State, exists." See Citibank v. Estate of Simpson, 290
N.J. Super. 519, 529-30 (App. Div. 1996) (stating "a foreign
corporation . . . would not be subject to this State's in
personam jurisdiction merely because a person authorized to
receive service on its behalf happened to be present in this
State and was personally served here"). The service on DPCL's
employee was insufficient to create personal jurisdiction.3
In addressing Dishman USA's contention on appeal that the
complaint against it should have been dismissed for a failure to
state a claim, we are satisfied that the trial judge provided
sufficient reasoning in his denial of the Rule 4:6-2 motion.
The judge properly viewed all inferences in plaintiff's favor
and found that DPCL's managing director's signature on the MOU
for the contracting party Dishman Group was sufficient to glean
3
In light of our conclusions, we need not discuss the issues of
forum non conveniens, nor whether PKM is an indispensable party.
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an intent to bind all of DPCL's subsidiaries including Dishman
USA.
We therefore reverse the grant of summary judgment to
plaintiff and the denial of summary judgment to DPCL. We affirm
the denial of Dishman USA's motion for dismissal and remand for
further proceedings.
Reversed and remanded. We do not retain jurisdiction.
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