Fdasmart, Inc. v. Dishman Pharmaceuticals (L-7832-13, Middlesex County and Statewide)

152 A.3d 948, 448 N.J. Super. 195

• Court: New Jersey Superior Court Appellate Division
• Decided: December 29, 2016
• Docket: A-2800-15T3
• Status: Published

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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

2 A-2800-15T3 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.

3 A-2800-15T3 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.

4 A-2800-15T3 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:

5 A-2800-15T3 [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

6 A-2800-15T3 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

7 A-2800-15T3 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.

8 A-2800-15T3 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.

9 A-2800-15T3 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.

10 A-2800-15T3 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

11 A-2800-15T3 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.

12 A-2800-15T3 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.

13 A-2800-15T3