Richard Wolf
New Jersey is home to numerous subsidiaries of foreign corporations, especially in the pharmaceutical and technology industries. In a decision, which will be welcomed by those corporations, the New Jersey Appellate Division recently reaffirmed that the foreign parent company of a wholly-owned New Jersey subsidiary is not subject to the general jurisdiction of New Jersey courts unless the plaintiff can meet the elements of piercing the corporate veil. FDASmart, Inc. v. Dishman Pharm. & Chems. Ltd., No. A-2800-15T3 (Dec. 29, 2016).
In FDASmart, the defendant Dishman Pharm. & Chems. Ltd (“DCPL”) was an Indian corporation with a principal place of business in India. In 2013, PKM, an Indian company, set up a meeting between FDASmart and DCPL to discuss the sale of a facility owned by a Chinese subsidiary of DCPL. A memorandum of understanding was entered into between PKM, FDASmart, and “Dishman Group” regarding the development of a sales strategy and ultimate sale of the facility. The name “Dishman Group” is a marketing term for DCPL and its subsidiaries. Eventually, the sale fell apart and FDASmart sued DCPL and DCPL’s wholly-owned New Jersey subsidiary, Dishman USA, in New Jersey state court. DCPL challenged that the court lacked personal jurisdiction over it but FDASmart asserted that DCPL had sufficient contacts with New Jersey because Dishman USA was a New Jersey corporation.
The Appellate Division reversed the trial court and found that there was no personal jurisdiction over DCPL. In assessing whether DCPL has continuous and systematic contacts with New Jersey justifying an exercise of general jurisdiction, the Court first reiterated that a subsidiary’s forum contacts will not be imputed to the parent company “without a showing of something more than mere ownership.” The Court went on to analyze DCPL and Dishman USA’s relationship under the “alter ego theory.” This theory, based on the doctrine of piercing the corporate veil, would allow the Court to impute Dishman USA’s New Jersey contacts to DCPL.
To pierce the corporate veil, a plaintiff must prove that the subsidiary was dominated by the parent corporation and that adhering to the fiction of separate corporate existence would perpetrate a fraud or injustice. In this case, Dishman USA was not the alter ego of DCPL because it was not completely dominated by DCPL. Dominance could not be established solely by overlapping boards of directors. Dishman USA’s ability to meet its expenses, even if just “barely,” also cut against a finding of dominance. The two companies engaged in arms-length transactions and there was no evidence of DCPL directly interfering with Dishman USA’s selection of personnel or marketing and operational policies. Therefore, Dishman USA’s contacts with New Jersey did not give rise to grounds allowing for an exercise of general jurisdiction.
This decision lays out the requirements for imputing a subsidiary’s forum contacts to its parent company. It reaffirms the elements of the alter ego theory and how a court should analyze a jurisdictional challenge involving foreign companies with domestic subsidiaries.