NOT FOR PUBLICATION WITHOUT APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS TAX COURT OF NEW JERSEY
Mala Sundar R.J. Hughes Justice Complex JUDGE P.O. Box 975 25 Market Street Trenton, New Jersey 08625 Telephone (609) 815-2922 TeleFax: (609) 376-3018 taxcourttrenton2@judiciary.state.nj.us February 26, 2019 Richard C. Kariss, Esq. Zachary T. Gladney. Esq. Steven L. Penaro, Esq. Alston & Bird, L.L.P. New York, New York 10016
Michael J. Duffy, Esq. Deputy Attorney General Trenton, New Jersey 08625
Re: Crown Packaging Technology, Inc. v. Director, Division of Taxation Dkt. No. 003249-2012 Dear Counsel:
This is the court’s opinion as to plaintiff’s motion for partial summary judgment. Plaintiff
seeks an Order voiding defendant’s notices asking that plaintiff file corporation business tax
(“CBT”) returns for 1996-2010 since it received royalty income from its affiliate that does business
in New Jersey. Plaintiff argues that the two royalty-generating licensing agreements between
plaintiff and its affiliate, allowing the affiliate the right to use plaintiff’s intellectual property (“IP”)
nation-wide, cannot be the basis for New Jersey’s jurisdiction over plaintiff, and to allow this
would violate the Due Process Clause (“DPC”) or the substantial nexus factor of the Dormant
Commerce Clause (“DCC”).
Defendant (“Taxation”) opposes the motion, claiming the matter is not ripe for summary
judgment. Alternatively, it contends that summary judgment should be granted in its favor because
* plaintiff is deemed to be doing business in New Jersey by receiving New Jersey-sourced royalty
income under Lanco, Inc. v. Dir. Div. of Taxation, 21 N.J. Tax 200 (Tax 2003), rev’d, 379 N.J.
Super. 562 (App. Div. 2005), aff’d, 188 N.J. 380 (2006), cert. denied, 551 U.S. 1131 (2007)
(foreign entity’s economic presence suffices as nexus under the DCC where entity earns New
Jersey-sourced royalty income from the use of its IP by its affiliate in New Jersey).
For the reasons stated below, the court denies, without prejudice, plaintiff’s partial
summary judgment motion. The court agrees with plaintiff that there appear to be material facts
here that are distinct from those in Lanco, and therefore, the ruling therein as to either the DPC or
DCC may not automatically control or apply. However, those facts were not properly adduced,
being neither certified to, nor included as materially undisputed facts, nor provided to Taxation
during discovery, which discovery is still pending. Therefore, and since the court cannot rule as a
matter of law that Taxation’s notices asking plaintiff to file CBT returns are constitutionally
impermissible, the court denies plaintiff’s motion, but without prejudice.
FACTS
The facts are taken from the pleadings of the parties and supporting certified attachments.
Plaintiff, f/k/a Crown Cork & Seal Technologies Corporation, is a Delaware corporation with its
offices located in Illinois. Plaintiff is holding company, and a member of the Crown Holdings,
Inc. (“Crown Group”). The latter apparently sells packaging products (packages, cans, containers
and the like) world-wide. Plaintiff asserts that it is an active research and development company
with extensive research facilities in Illinois and England, and owns/develops IP such as patents,
know-how, technology, and trademarks, for use of the Crown group on a nation- and world-wide
basis.
2 Crown Cork & Seal USA (“USA”), a Delaware corporation, is plaintiff’s affiliate. USA is
apparently in the “business of developing, manufacturing, marketing, and selling containers and
related products and providing services related to such products.”
On December 31, 1996, plaintiff entered into a Patent & Technology License Agreement
(the “Patent Agreement”) granting USA the rights to plaintiff’s IP by:
a perpetual, world-wide, non-exclusive right to develop, manufacture, have manufactured, use and sell any products employing . . . [plaintiff’s IP] . . . (the “Licensed Products”), provide services related to the Licensed Products, and otherwise commercially exploit the [IP] . . . throughout the world, including the right to grant sublicenses.
In return, USA had to pay a royalty of 3% of the net sales of the Licensed Products. “Net sales”
means the gross sales of the Licensed Products less discounts, taxes, shipping and insurance costs,
if those are included in the “gross sales price.” However, if USA paid royalty under the separate
1996 Trademark Agreement (see below), then it did not have to pay the 3% under the Patent
Agreement. A 2005 amendment included certain specific IP, to which plaintiff gave USA the
same rights as above, except that this was an exclusive license. USA had to pay plaintiff a royalty
of 2.8% but as to any IP sublicenses, USA had to pay plaintiff 50% of the royalties USA received.
USA could sub-license plaintiff’s IP without plaintiff’s consent under the same conditions
of the Agreement, with USA being responsible for the sub-licensee’s compliance and obligations.
Plaintiff was primarily responsible for all issues pertaining to its IP, including defending their
validity. Any litigation involving the IP could be prosecuted/defended by plaintiff, or by plaintiff
and USA jointly, and could be compromised or settled by plaintiff (upon notice to USA). If USA
was a party in a third-party infringement claim, its out-of-pocket costs would be reimbursed by
plaintiff. However, plaintiff disclaimed any obligations towards USA or USA’s sub-licensees as
3 to, among others, the use of plaintiff’s IP, the quality and performance of products manufactured
and sold using the IP, or third-party claims relating to such products, or for “any failure” in the
production, design or operation of such products. Plaintiff also disclaimed any liability to USA or
a sub-licensee “for indirect, special, incidental or consequential damages.” On the other hand,
USA would indemnify, defend, and hold plaintiff harmless against any liability arising from,
among others, the manufacture, use or sale of the Licensed Products.
On the same date, plaintiff entered into a separate Trademark License Agreement (the
“Trademark Agreement”), which also granted USA a “perpetual, world-wide, non-exclusive”
license to certain trademarks along with “slogans, logotypes, designs and trade dress” (collectively
“Marks”)
(i) to use the Marks as part of its corporate name and the names of its Affiliates . . . and (ii) to use and permit its Affiliates to use the Marks in connection with the Business and on and in connection with the goods and services of the Business (the “Licensed Goods/Services”).
USA had to pay a royalty of 3% of the net sales unless it paid royalty under the Patent Agreement.
USA could sub-license plaintiff’s trademarks without plaintiff’s consent, but remained responsible
for its and the sub-licensee’s compliance and obligations with the terms of the Agreement. Plaintiff
was primarily responsible for all issues pertaining to its IP, including defending their validity. Any
litigation involving the IP could be prosecuted/defended by plaintiff, or by plaintiff and USA
jointly, and could be compromised or settled by plaintiff (upon notice to USA). If USA was a
party in a third-party infringement claim, its out-of-pocket costs would be reimbursed by plaintiff.
There was no warranty disclaimer/indemnification provision.
In March 2012, Taxation audited USA. Since USA was deducting royalty payments made
to plaintiff, Taxation conducted a spin-off audit of plaintiff. At the auditor’s request, plaintiff
4 provided unsigned CBT returns for 1997-2005, excluding tax year 2002, claiming that USA did
not pay royalties that year. The returns computed CBT at 9% of the gross receipts. Plaintiff did
not provide the IP agreements, but provided royalty study reports prepared by Pricewaterhouse
Coopers on accepted royalty rates. Taxation therefore imputed royalty payments for 1996-2010,
and apportioned 0% to Illinois since it was a combined reporting jurisdiction. Apparently, the
Illinois return showed that royalty income was not included in the numerator of the sales fraction
on the apportionment schedule. Taxation allocated the royalty income to New Jersey using USA’s
allocation factor, and computed CBT (plus interest and penalties) totaling $2,099,619.16 for tax
years 1997-2010.
Plaintiff then submitted a settlement offer to Taxation for both itself and USA, which
Taxation rejected on May 1, 2012. Taxation further required that plaintiff file tax returns within
30 days of receipt of the correspondence, else it would levy an arbitrary assessment on plaintiff.
Promptly thereafter, plaintiff filed the instant complaint in the Tax Court on May 30, 2012,
seeking injunctive and declaratory relief from any proposed arbitrary or other assessment, alleging
that requiring it to file CBT returns violated the DPC and DCC because it had no physical or other
presence in New Jersey. 1 The court denied temporary restraints and injunctive relief.
This partial summary judgment motion followed. Plaintiff’s president averred that plaintiff
developed IP “for the nation-wide business operations” of the Crown Group; plaintiff had no
physical presence in New Jersey in 1996-2010; USA “conducts a packaging products
manufacturing business in which it uses” plaintiff’s IP; USA is plaintiff’s only domestic related-
1 Thus, Taxation’s requests of October 16, 2012, and February 1, 2013, for plaintiff to file CBT returns for 1996-2010 were in vain. Therein, Taxation stated that plaintiff was doing business in New Jersey having “receiv[ed] royalty payments from sales in New Jersey,” and required plaintiff to self-assess by filing CBT returns within 30 days.
5 party licensee; and USA did not manufacture packaging products in New Jersey. In its answers to
Taxation’s interrogatories, plaintiff stated that the “only connection between” plaintiff’s IP and
New Jersey was (1) on USA’s employees’ business cards, stationery, or other advertising material
given to USA’s current or potential New Jersey customers; (2) on USA’s shipping materials used
to ship USA’s products into New Jersey; and (3) on USA’s products, but only in “certain instances”
and then, those were “small and inconspicuous to the consumer.” Plaintiff also stated that other
than space rented by USA in New Jersey to store its packaging products during “certain periods”
in 1996-2010, neither USA nor any related member owned/used/leased any office, retail outlet,
warehouse, or other building in New Jersey.
During oral argument, plaintiff’s counsel, in the course of expounding on the three limited
instances of USA’s use of plaintiff’s IP, produced a sample of a product manufactured and sold by
USA for illustrative purposes, and to show that plaintiff’s IP was not the same as the IP in Lanco
(the name “Lane Bryant” displayed on retail store fronts). The product was an aerosol shaving
cream can. It contained the logo, a crown symbol in a small space, with the prominent display of
the name Barbasol on the can, which name does not belong to plaintiff or USA. Per plaintiff’s
counsel, USA uses advanced technology and know-how in manufacturing such cans, places the
crown logo (plaintiff’s IP) on the same, then after an order is placed, sells and ships the cans to
Barbasol (an unrelated entity which sells, among others, shaving cream in aerosol cans). Barbasol
then apparently fills in its shaving cream, assembles the cans, and sells the filled cans to its
customers, including those in New Jersey. USA apparently also manufactures similar cans for
selling other aerosol products (WD40) or food cans. Per plaintiff’s counsel, USA’s customers are
only manufacturers or wholesalers. Counsel also alleged that plaintiff’s IP (the logos) are placed
on USA’s products solely for liability purposes so that if the aerosol can fails, the potential victim
6 could identify the manufacturer. He stated that in many instances, the crown mark is not placed
on the aerosol cans, which is when the shrink wrap encasing the aerosol cans would contain the
crown logo, again purely for liability purposes. None of this information was contained in the
moving papers, nor were any of these materials (such as the container) produced for Taxation’s
review or examination during discovery. Nor was the manner of USA’s operations, or the
nature/manner of USA’s customers, certified to by anyone from USA.
Taxation opposed the motion, claiming discovery was ongoing (it did not yet know the
names of the sub-licensees 2 and had presently issued subpoenas for the deposition of plaintiff’s
president and another person); facts were being adduced during oral argument; and that if a
decision was to be rendered as a matter of law, then Taxation should win under Lanco.
ANALYSIS
Plaintiff concedes that under Lanco, New Jersey can impose CBT regardless of plaintiff’s
lack of physical presence. However, it claims, Lanco does not apply here because the facts are
different, and also because the trial court’s reference to the inapplicability of the DPC is non-
binding dicta.
In Lanco, the issue was whether a foreign entity could be required to file CBT returns if it
lacked physical presence, but received royalty income from “a New Jersey source only pursuant
to a license agreement with another corporation that conducts a retail business here.” 21 N.J. Tax
at 203. The facts pertinent to this issue were that Lanco, a Delaware corporation, owned
“trademarks, trade names and service marks,” which it licensed to its affiliate Lane Bryant, Inc.
Ibid. The latter used such IP in its “retail operations, including . . . in New Jersey,” and paid Lanco
2 The court had, in the context of a discovery motion, ordered plaintiff to provide the names of four non-related domestic sub-licensees to Taxation.
7 a royalty for the same. Ibid. Lanco had no “offices, employees, or real or tangible property in
New Jersey.” Ibid. The court noted that Lanco had a “direct long-term contractual relationship
with a related entity doing business in New Jersey.” Id. at 218. There were additional facts, most
being stipulated, and many unresolved, and only the stipulated facts pertinent to the constitutional
nexus issue were recited. Lanco, 379 N.J. Super. at 567 n.3, 573 n.5.
However, these limited facts are also present here. Plaintiff is a foreign corporation, which
owns IP, and licenses the same to USA for use in the manufacture and sale of USA’s packaging
products. In return, plaintiff receives royalty based on the net sales amount. Plaintiff concedes
that USA has New Jersey-based customers and does business in New Jersey.
Plaintiff argues that its significantly distinguishing facts render Lanco inapplicable. Those
alleged facts are: (1) plaintiff is not a standard, passive, shell Delaware holding company that owns
and licenses IP to a subsidiary; (2) USA is not a retailer; (3) USA never manufactured products in
New Jersey; (4) USA’s customers are not retailers; (4) USA manufactures packaging products
after specific orders (as opposed to mass manufacturing); (5) neither plaintiff nor USA had any
control over where or how USA’s customers sold their products that were contained within USA’s
packages (example: the shaving cream of Barbasol contained within the aerosol cans manufactured
and sold to Barbasol by USA); (5) plaintiff’s IP is used at most in three instances; and plaintiff’s
logos are barely visible on USA’s products, as compared to the large “Lane Bryant” signs on retail
store fronts or within such stores.
First, the court agrees that some of these facts, particularly plaintiff’s remoteness from the
use of its IP and lack of control by plaintiff or USA over placement of USA’s products in New
Jersey, if true, could possibly require this court to analyze whether requiring plaintiff to file CBT
8 returns for 1996-2010 violates the DPC or the DCC. This is because the trial court itself noted as
follows:
It is appropriate to note, in addition, certain considerations that arise from the particular facts of this case. The plaintiff, while not physically present in the state, does have a direct long-term contractual relationship with a related entity clearly doing business in New Jersey. The case does not therefore concern isolated transactions, indirect connections or distant actors who cannot anticipate where the products of their effort, tangible or intangible, may come to be employed. If physical presence were not a requirement, nexus might be found in the circumstances of this case, but not necessarily in cases where there is no direct contractual relationship between the producer of property and its user in this state. There are other factors besides physical presence that can limit nexus findings and prevent taxation of remote parties. Certainly the due process standards of notice and fair warning will continue to hold . . . .
[Lanco, 21 N.J. Tax at 218 (emphasis added).]
Second, in holding that “it is impossible to conclude that [Lanco’s] agreement with Lane
Bryant does not satisfy the [DPC] standard in that Lanco has purposefully availed itself of the
benefits of an economic market in New Jersey,” id. at 214, the court relied upon Quill Corp. v.
North Dakota, 504 U.S. 298, 307-08 (1992). Quill, thus, is the controlling standard, wherein the
United States Supreme Court held that for purposes of the DPC nexus analysis, the inquiry is in
terms of “purposeful avail[ment]” of a State’s economic market, which in turn would be “notice”
or “fair warning” of susceptibility to that State’s taxing jurisdiction. 504 U.S. at 308, 312-13. 3
3 For this reason, the court does not need to analyze whether the trial court’s holding in Lanco as to the DPC violation is non-binding dicta since this portion of the court’s ruling was not appealed, and therefore, the Appellate Division observed that that it did not “need [to] comment on the Tax Court’s thorough and well-reasoned analysis of the Due Process issue.” Lanco, 379 N.J. Super. at 562 n.1. The court nonetheless notes that since the trial court’s ruling on the DPC was based on stipulated facts, thus, was a decision as a matter of law, it renders acceptance of the same by the Appellate Division as something more significant than mere dicta. Note also that Taxation, during appeal, cited to these same standards when it argued that the rationale of the DPC, namely, “that businesses [remotely] engage in significant levels of commercial activity . . . and foresee being subject to state tax laws as a result of commercial activity
9 Third, Taxation itself recognized that its regulatory example imputing nexus or “doing
business” to a foreign IP holding company receiving royalty from its related member for use of
such IP, “assumed that the activities of the” foreign entity met the “nexus requirements,” however,
Taxation “will look to the purposeful exploitation of the New Jersey market and a ‘presence’ in
the State of New Jersey that is more than de minimis.” See 28 N.J.R. 4795(a). Note that Taxation’s
regulation, N.J.A.C. 18:7-1.9(b), promulgated in 1996, exemplified the term “doing business” as
including a foreign holding company receiving royalty from licensing its IP (such as trademarks)
to New Jersey companies for use in New Jersey due to “its trademark licensing activities,” based
on the decision in Geoffrey, Inc. v. S.C. Tax Comm’n, 437 S.E.2d 13 (S.C.), cert. denied, 510 U.S.
992 (1993), which had so held. See 28 N.J.R. 4795(a); Lanco, 21 N.J. Tax at 217 (N.J.A.C. 18:7-
1.9 “amend[ment] to include the licensure of trademarks to retailers operating in New Jersey” was
“unquestionably” adopted as a “response to the question of the necessity of physical presence for
nexus in light of Quill and Geoffrey. . .”).
Fourth, in Griffith v. ConAgra Brands, Inc., 728 S.E.2d 74 (W. Va. 2012), the court held
that the foreign licensor entity did not have either minimum contacts for DPC purposes, nor
substantial nexus for DCC purposes, despite receiving royalty payments that could be sourced to
the state. The court observed that Geoffrey was inapplicable because it “did not address the
licensing of a trade name by a foreign licensor to a foreign manufacturer which assembles and
packages the product out of state for sale to wholesalers and retailers in the forum state . . . [nor]
the situation where the wholly-owned subsidiary, as licensor, entered into licensing agreements
not only with its affiliates but also with separate corporations or entities.” Id. at 84. Although an
directed at a particular state,” should also be the same rationale for purposes of the DCC nexus analysis. Id. at 566. The Appellate Division agreed with this argument. Ibid.
10 out-of-State case, thus not controlling, it is nonetheless persuasive since this court agrees that the
additional facts as alleged during oral argument, if true, were not addressed by the Appellate
Division in Lanco, which had relied heavily on Geoffrey to rule that physical presence is
unnecessary for purposes of the DCC nexus issue. 4
Consequently, it is not out of the realm of possibility that even if a foreign entity licensor
receives royalty income from the use of its IP in New Jersey by a related entity that does business
in New Jersey, that licensor is not foreclosed from showing that it lacked minimal contacts or
derivate nexus based on certain facts. Here, the language of the licensing agreements between
plaintiff and USA indicated an explicit desire for USA to “commercially exploit” the manufacture
and sale of its products/services using plaintiff’s IP on a world-wide basis, with no geographical
limitation as to New Jersey. Plaintiff is paid a royalty based on sales by USA. These facts allow
for an implication that plaintiff sought to benefit from New Jersey’s economic market. However,
the alleged lack of control over where and how USA’s customers sold their products could weaken
this “purposeful availment” factor, especially if USA or its customers are not retailers, thus did not
4 Similarly, in Scioto Ins. Co. v. Okla. Tax Comm’n, 279 P.3d 782 (Okla. 2012), the court held that Oklahoma cannot attempt to tax a foreign entity receiving royalties from its related member doing food business in Oklahoma using the entity’s IP under licensing agreements entered into outside Oklahoma. The court held that the state had “no connection to or power to regulate the licensing agreement” and that the matter was different from Geoffrey because the IP entity was “not a shell” and the “licensing agreement [was] not a sham obligation to support a deduction” for Oklahoma income tax purposes. Id. at 783-84. The court concluded that the state tax authority could not “summarily disregard the licensing agreement simply because it produces a deduction that [it] . . . does not like.” Id. at 784. The dissent, however, reasoned that Geoffrey should apply since the IP entity “intentionally placed [its IP] in the stream of Oklahoma’s commerce, and purposefully sought the advantages of economic contact with our State,” and such “economic presence was sufficient contact to satisfy the fundamental principles mandated by the” DPC. Id. at 785-86 (Gurich, J., dissenting) (relying on Geoffrey). Given that this court agrees with Geoffrey that it is not the contract that forms a basis for jurisdiction, see infra pp. 15-16, it does not consider Scioto persuasive.
11 direct use of plaintiff’s IP to New Jersey consumers as in Lanco, Geoffrey, and Quill. Cf. Geoffrey,
437 S.E. 2d at 15, 16 (foreign licensor was not “unwillingly brought into contact with South
Carolina through the unilateral activity of an independent party,” rather, licensor’s business was
“ownership, licensing, and management of” its IP, and by “electing to license its [IP] for use by
[its affiliate licensee] . . . in many states, [licensor] contemplated and purposefully sought the
benefit of economic contact with those states,” especially since it did not bar its use in South
Carolina as it had in several states, including New Jersey).
These same alleged distinguishing facts may also render the DCC nexus analysis in Lanco
as inapplicable. 5 The only question decided in Lanco was whether the DCC’s nexus component
requiring a substantial nexus to the taxing state can be met in the absence of physical presence.
Lanco did not decide the quality or quantity of contacts deemed to be substantial.
In Quill also there was no bright-line test or articulated standard on what or how much is
“substantial nexus” under the DCC analysis. The first court agreed that “the presence in the taxing
State of a small sales force, plant, or office” could satisfy the DCC’s substantial nexus component,
and that Quill’s “title to ‘a few floppy diskettes’ present in the State,” could be “minimal nexus.”
Quill, 504 U.S. at 315 & n.8. It nonetheless rejected a “slightest presence standard of constitutional
nexus,” therefore, held that “Quill’s licensing of software” was not substantial nexus. Id. at 315
5 The DCC is analyzed under a four-part test. The first is that the tax be applied “to an activity with a substantial nexus with the taxing State.” Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 297 (1977). The tax must also be “fairly apportioned,” non-discriminatory, and “fairly related to the services provided by the State.” Ibid. Note that in Lanco, the court held that the last three factors were not implicated because: (1) Taxation was only requiring Lanco to file returns; (2) domestic or foreign entities were both being subject to the CBT on royalty or license income, whether or not the foreign entities were physically present; and (3) “Lanco’s intangibles are utilized in the conduct of Lane Bryant’s retail business,” thus, Lanco was “clearly enjoy[ing] the same benefits provided to Lane Bryant.” Lanco, 21 N.J. Tax at 215.
12 n.8 (citation and internal quotation marks omitted). Thus, it would appear that there must be more
than a de minimis physical presence of a foreign entity in the taxing state for purposes of the DCC
nexus analysis, but not much more than minimal contacts.
The dissent noted that the majority did not articulate “what constitutes the requisite”
amount of presence for purposes of the substantial nexus factor of the DCC. Id. at 330 (White, J.,
dissenting). The dissent also noted that given the state’s assertion of Quill’s physical presence,
and Quill’s concession of economic presence via its software licensing (but arguing such presence
is “insufficient”) shows that “[r]easonable minds surely can, and will, differ over what showing is
required to” establish a presence which is “adequate” enough “to justify imposing” a tax. Id. at
330-31. Thus, the appropriate manner to decide the quality and quantity of contacts with the state
would be to remand the case, rather than a ruling “as a matter of law” that “Quill's ownership of
software [is not] sufficient physical presence under its new Commerce Clause nexus requirement.”
Id. at 330 n.3. Such a ruling “rebuffs North Dakota’s challenge without setting out any clear
standard for what meets the Commerce Clause physical-presence nexus standard and without
affording the State an opportunity on remand to attempt to develop facts or otherwise to argue that
Quill's presence is constitutionally sufficient.” Ibid.
Based on the above precedent, the court agrees with plaintiff that Lanco is not
automatically controlling as to either the DPC or DCC. However, the court cannot rule here, as a
matter of law, that Taxation violated either the DPC or the substantial nexus component of the
DCC. The matter was brought before this court as a partial summary judgment motion when
discovery was still incomplete and pending. Verily, plaintiff’s allegation that USA did not
manufacture products in New Jersey and that neither plaintiff nor USA had any physical presence
in New Jersey were averred or certified to, and were not disputed by Taxation for purposes of
13 plaintiff’s partial summary judgment motion. However, while it also certified to the limited use,
employment, or “inconspicuous” display of plaintiff’s IP in three circumstances via interrogatory
responses, the same were not accepted as materially undisputed facts by Taxation. More
importantly, much of the crucial, and alleged, distinguishing facts, such as USA’s manner and
method of operations, the nature of USA’s customers, and plaintiff’s lack of control over the
manner and method of how USA’s customers used USA’s products in New Jersey, were all
provided for the first time during oral argument, and then by plaintiff’s counsel. They were not
contained in the moving papers, nor were any materials (such as the container) produced for
Taxation’s review or examination during discovery, nor was the manner of USA’s operations or
the nature/manner of USA’s customers certified to by anyone from USA. Thus, Taxation’s
objections as to several factual assertions made by plaintiff’s counsel during oral argument, to wit,
a description of USA’s business process, its products, and its clientele, in an effort to distinguish
plaintiff from the plaintiff in Lanco since they were being asserted for their truth, are well-taken.
Thus, the court cannot, without affording Taxation the opportunity to explore these
proffered facts, decide, as a matter of law and based on the illustrative evidence offered by
plaintiff’s counsel during oral argument, that Taxation violated the DPC or DCC substantial nexus
requirement, or that the alleged contacts by plaintiff are none or less than minimal, or less than
substantial. This is especially considering plaintiff’s counsel’s statement that plaintiff’s IP is not
just the crown logo, but are incorporated into the very manufacture of the highest quality packaging
products using plaintiff’s patented technology, know-how and trade secrets. The latter would then
require a factual finding as to the quantity of USA’s products used in New Jersey, not just the
crown logos imprinted on one or two cans. Even in Griffith, where the facts are similar to those
being claimed here by plaintiff’s counsel, the trial court’s ruling that the licensor had no minimum
14 or substantial contacts was based on stipulated facts and “adjudicated findings.” See 728 S.E.2d
at 76-77. Of note is also the Appellate Division’s remand in Lanco, which stated that since it
“merely address[ed] the fundamental issue presented,” the matter would be remanded to “allow
further development before that court of any remaining relevant or material factual contest which
may affect the taxability, determination of apportionment of income attributable to New Jersey, or
tax for any particular tax year in question.” Lanco, 379 N.J. Super. at 567 n.3. It may very well
be that if the facts provided by counsel during oral argument, facts pertaining to USA’s operations
and USA’s customers, are reviewed by Taxation, Taxation may consider plaintiff as being
constitutionally safe under the DPC or DCC since it would “look to the purposeful exploitation of
the New Jersey market and a ‘presence’ in the State of New Jersey that is more than de minimis.”
28 N.J.R. 4795(a). Nonetheless, any ruling by the court in this regard must await Taxation’s
factually based determination, whether by trial or another round of summary judgment motions.
Although plaintiff argues that the two licensing agreements cannot be the basis for New
Jersey asserting constitutional jurisdiction over plaintiff, Taxation was not basing its request that
plaintiff file CBT returns because it had licensing agreements with USA. Rather, the request was
because plaintiff was receiving New Jersey sourced royalty income from USA, which, under
N.J.S.A. 54:10A-2, and N.J.A.C. 18:7-1.9, would obligate plaintiff to file CBT returns and report
the same. As was lucidly pointed out: “[t]he real source of [a licensor’s] income is not a paper
agreement, but [the state’s] . . . customers.” Geoffrey, 437 S.E.2d at 18. Thus, plaintiff is not
entitled to a ruling that, as a matter of law, it had no constitutionally sufficient contacts with New
Jersey. See, e.g., Burger King Corp. v. Rudzewicz, 471 U.S. 462, 479 (1985) (court’s inquiry does
not end with the contract alone, but will also consider factors such as “prior negotiations and
contemplated future consequences, along with the terms of the contract and the parties’ actual
15 course of dealing.”); Int’l Shoe Co. v. Washington, 326 U.S. 310, 318-19 (1945) (one or two acts
“may be deemed sufficient” for exercising personal jurisdiction over an entity “because of their
nature and quality and the circumstances of their commission,” thus, the test for minimum contacts
is not “mechanical or quantitative,” or whether an entity’s activity (own or through someone else)
“is a little more or a little less,” rather it is “the quality and nature of the activity in relation to the
fair and orderly administration of the laws. . .”).
Summary judgment will be granted “if the pleadings, depositions, answers to
interrogatories and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact challenged and that the moving party is entitled to a judgment
or order as a matter of law.” R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520,
523 (1995). Here, and while the court agrees with plaintiff that this matter does not automatically
and squarely fall within the ruling in Lanco due to certain distinct facts specific to plaintiff, those
facts were not properly and legally adduced in connection with plaintiff’s motion. Therefore, the
court cannot rule as a matter of law that the alleged facts render plaintiff safe under the DPC or
DCC’s nexus tests.
CONCLUSION
For the aforementioned reasons, plaintiff’s partial summary judgment motion is denied
without prejudice.
Very truly yours,
Mala Sundar, J.T.C.