NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-3701-14T3
KELLY MORAN and CAROL MORELLO,
Plaintiffs-Respondents,
v.
BIOLITEC INC. and BIOMED TECHNOLOGY HOLDINGS LTD.,
Defendants,
and
BIOLITEC AG and WOLFGANG NEUBERGER,
Defendants-Appellants. __________________________________
Argued March 21, 2017 – Decided November 14, 2017
Before Judges Ostrer, Leone and Vernoia.
On appeal from the Superior Court of New Jersey, Chancery Division, Mercer County, Docket No. C-000063-09.
Barry D. Szaferman and Edward Griffith (The Griffith Firm) of the New York bar, admitted pro hac vice, argued the cause for appellants (Szaferman, Lakind, Blumstein & Blader, PC, and Mr. Griffith, attorneys; Nathan M. Edelstein and Mr. Griffith, on the briefs). Peter Reiser (Eiseman Levine Lehrhaupt & Kakoyiannis, PC) of the New York bar, admitted pro hac vice, argued the cause for respondents (Berman Rosenbach, PC, Mr. Reiser and Eric R. Levine (Eiseman Levine Lehrhaupt & Kakoyiannis, PC) of the New York bar, admitted pro hac vice, attorneys; Mr. Rosenbach, Mr. Levine and Mr. Reiser, on the brief).
The opinion of the court was delivered by
OSTRER, J.A.D.
This case does not belong in New Jersey. Defendants Biolitec
AG, a German corporation, and its CEO and majority owner, Wolfgang
Neuberger, an Austrian, lacked the requisite minimum contacts with
New Jersey to support the trial court's exercise of personal
jurisdiction. Therefore, on defendants' appeal, we reverse the
default judgment that was entered against them after their answer
was stricken for discovery violations.
I.
We limit our discussion to the pertinent jurisdictional
facts. Biolitec, Inc. was incorporated in New Jersey in 1989.
The certificate of incorporation designated Carol Morello, then a
New Jersey resident, as its registered agent. The original board
of directors consisted of plaintiffs (who were married),
2 A-3701-14T3 Neuberger, and a fourth man.1 Plaintiffs listed the same New
Jersey address. Neuberger and the fourth member listed a common
address in West Germany. An attorney was listed as the
incorporator.2 Neuberger was CEO and chairman. Plaintiffs each
had a five percent ownership interest, and Neuberger the remaining
ninety percent. In 2000, Neuberger transferred his ownership
interest to Biolitec AG.
Although Biolitec, Inc. was initially located in Morello's
New Jersey home, plaintiffs and the company moved to Connecticut
the following year. Since 1995, Biolitec, Inc. has been
headquartered in Massachusetts.
Besides Biolitec, Inc., Neuberger was affiliated with several
foreign companies, all of which fell under the same corporate
umbrella. Neuberger solely owned Biomed Technology Holdings, Ltd.
(Biomed), a Malaysian-based corporation. Biolitec AG, the German
corporation Neuberger managed, is the parent of several other
foreign companies that manufacture and distribute medical lasers
1 Although plaintiffs contend before us that Neuberger "made the decision to incorporate in New Jersey," they cite no record evidence for that assertion. 2 According to the certificate of incorporation, the company was initially named "CeramOptec, Inc."; however, in 2000, the parties renamed the company "BioLitec, Inc.," to "coincide[] with a decision to focus the company's business on providing fiber optics and lasers to the medical market." (We follow both parties' spelling of that company name without an internal capital "L".)
3 A-3701-14T3 and fiber optics. Through Neuberger's transfer of his ninety-
percent ownership interest of Biolitec, Inc., that firm became a
subsidiary of Biolitec AG.
Plaintiffs alleged that between 2000 and 2008, Neuberger and
Biolitec AG "looted" Biolitec, Inc. of over $12,000,000.
Plaintiffs claimed Neuberger and Biolitec AG engaged in several
schemes to divert Biolitec, Inc.'s profits. This included
overcharging Biolitec, Inc. for goods, services, and lasers from
affiliated companies; inflating invoices for overhead charges and
fees; and charging illegitimate interest on inter-company fund
transfers. All these alleged activities occurred while Biolitec,
Inc. was headquartered in Massachusetts.
Based on these facts, plaintiffs filed a complaint against
defendants in 2009 under the Oppressed Minority Shareholder
statute, N.J.S.A. 14A:12-7, seeking the involuntary dissolution
of Biolitec, Inc. Defendants responded by moving to dismiss the
complaint for lack of personal jurisdiction.
In support of their motion, Neuberger submitted a
certification stating he was an Austrian citizen, did not reside
in New Jersey, and did not own or lease any property in New Jersey.
He asserted, "At no time have I personally solicited business or
advertised in New Jersey. Moreover, I have not personally
contracted to purchase or supply goods and/or services in New
4 A-3701-14T3 Jersey." Neuberger added, "Neither Biolitec AG nor any of its
employees have solicited business or advertised in New Jersey.
Similarly, Biolitec AG has not contracted to purchase or supply
goods and/or services in New Jersey." Neither plaintiff submitted
a certification in response to defendants' motion to dismiss. At
oral argument on the motion, defense counsel argued that the record
failed to establish specific jurisdiction over defendants and that
the certificate of incorporation, alone, does not suffice.
Plaintiffs responded by characterizing defendants' corporate
structure as a "shell game" to avoid personal jurisdiction, noting
that Neuberger had contested personal jurisdiction in a
Massachusetts lawsuit. Plaintiffs argued that by forming a
corporation in New Jersey, Neuberger subjected himself to personal
jurisdiction. Additionally, plaintiffs contended that the trial
court should follow Delaware caselaw, which authorized personal
jurisdiction over nonresident directors or shareholders.
The trial court denied defendants' motion to dismiss. Citing
Armstrong v. Pomerance, 423 A.2d 174 (Del. 1980), the court found
that both Neuberger and Biolitec AG had sufficient minimum contacts
under International Shoe Co. v. Washington, 326 U.S. 310, 66 S.
Ct. 154, 90 L. Ed. 95 (1945), to exercise specific personal
jurisdiction. Given Neuberger's role as an original board member
of Biolitec, Inc. in New Jersey, and his position as president and
5 A-3701-14T3 CEO, the court concluded that Neuberger "knowingly availed himself
of the protection of New Jersey law," and "reasonably should expect
to be ha[]led into a New Jersey court . . . ." Conceding the case
for asserting jurisdiction against Biolitec AG was more difficult,
the court found that Biolitec AG subjected itself to New Jersey
jurisdiction when it obtained a controlling interest in a closely
held New Jersey corporation. The court highlighted the fiduciary
duties of shareholders and directors of closely-held
corporations.3
On appeal, defendants contend the trial court erred in
determining that there were sufficient minimum contacts to
exercise personal jurisdiction.
II.
We engage in a two-part review of a trial court's exercise
of jurisdiction, since it involves a "mixed question of law and
fact . . . ." Citibank, N.A. v. Estate of Simpson, 290 N.J. Super.
519, 532 (App. Div. 1996). "We review the court's factual findings
with respect to jurisdiction to determine whether they were
supported by substantial, credible evidence . . . ." Mastondrea
v. Occidental Hotels Mgmt. S.A., 391 N.J. Super. 261, 268 (App.
Div. 2007) (citing Rova Farms Resort, Inc. v. Inv'rs Ins. Co., 65
3 The court found no basis to exercise personal jurisdiction over BioMed, and dismissed the complaint against it.
6 A-3701-14T3 N.J. 474, 484 (1974)). "However, whether these facts support the
court's exercise of personal jurisdiction over a defendant is a
question of law, which we review de novo." Patel v. Karnavati
America, LLC, 437 N.J. Super. 415, 423 (App. Div. 2014) (internal
quotation marks and citation omitted).
As the trial court judge found that general jurisdiction did
not exist, and plaintiffs do not challenge that finding, we limit
our discussion solely to specific jurisdiction. See Waste Mgmt.
v. Admiral Ins. Co., 138 N.J. 106, 119 (1994) (distinguishing
between the two theories of personal jurisdiction, explaining that
"a cause of action [that] arises directly out of a defendant's
contacts with the forum state" is specific and one "based instead
on the defendant's continuous and systematic activities in the
forum" is general), cert. denied, 513 U.S. 1183, 115 S. Ct. 1175,
130 L. Ed. 2d 1128 (1995). In other words, specific jurisdiction
"depends on an 'affiliatio[n] between the forum and the underlying
controversy,' principally, activity or an occurrence that takes
place in the forum State and is therefore subject to the State's
regulation." Fairfax Fin. Holdings Ltd. v. S.A.C. Capital Mgmt.,
L.L.C., 450 N.J. Super. 1, 68 (App. Div. 2017) (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)).
7 A-3701-14T3 In conformance with due process, specific jurisdiction over
a non-resident can only be established if the individual has
"certain minimum contacts" with the forum state, "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 Co., supra, 326
U.S. at 316, 66 S. Ct. at 158, 90 L.Ed. at 102). This minimum
contacts inquiry focuses on "the relationship among the defendant,
the forum, and the litigation." Shaffer v. Heitner, 433 U.S. 186,
204, 97 S. Ct. 2569, 2580, 53 L. Ed. 2d 683, 698 (1977). It is
critical to our due process analysis "that there be 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., supra, 138 N.J.
at 120 (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S. Ct.
1228, 1240, 2 L. Ed. 2d 1283, 1298 (1958)). See also Dutch Run-
Mays Draft, LLC v. Wolf Block, LLP, 450 N.J. Super. 590, 599 (App.
Div. 2017) ("Thus, courts examine whether a non-resident defendant
has 'purposefully avail[ed] itself of the privilege of conducting
activities' within the forum, such that the defendant can
reasonabl[y] anticipate being haled into the forum." (quoting
8 A-3701-14T3 Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S. Ct.
2174, 2183, 85 L. Ed. 2d 528, 542 (1985))).4
Once a defendant challenges personal jurisdiction, the
plaintiff bears the burden of demonstrating minimum contacts.
Blakey v. Cont'l Airlines, 164 N.J. 38, 71 (2000). If the
plaintiff succeeds, the defendant bears the burden of showing the
unfairness or unreasonableness of asserting jurisdiction. Waste
Mgmt., supra, 138 N.J. at 124-25. These contacts should be
established "through the use of sworn affidavits, certifications,
or testimony." Jacobs v. Walt Disney World, Co., 309 N.J. Super.
443, 454 (App. Div. 1998).
The United States Supreme Court's decision in Shaffer, supra
is instructive. In that case, a nonresident shareholder of
Greyhound Corp. – a Delaware corporation with its principal place
of business in Arizona – sued its present and former officers or
directors in Delaware, alleging a breach of their fiduciary duties.
4 We recognize, but need not resolve, the debate over the significance of a defendant's mere "expectations" in the personal jurisdiction analysis. As a plurality of the United States Supreme Court noted, reversing a decision of our Supreme Court, "[I]t is the defendant's actions, not his expectations, that empower a State's courts to subject him to judgment." J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 883, 131 S. Ct. 2780, 2789, 180 L. Ed. 2d 765, 776 (2011) (Nicastro), reversing Nicastro v. J. McIntyre Mach., Ltd., 201 N.J. 48 (2010). See Patel v. Karnavati Am., LLC, 437 N.J. Super. 415, 425-29 (App. Div. 2014) (discussing Nicastro).
9 A-3701-14T3 433 U.S. at 189-190, 97 S. Ct. at 2572, 53 L. Ed. 2d at 688-89.
The plaintiff never alleged that any of the defendants ever set
foot in Delaware, or that any act related to his lawsuit took
place there. Id. at 213, 97 S. Ct. at 2584, 53 L. Ed. 2d at 703.
Instead, he presented two different theories for establishing
personal jurisdiction over the defendants. First, relying on a
state statute that treated stock in Delaware as being physically
present in the state, he argued that Delaware had quasi in rem
jurisdiction over the defendants since they all owned stock in a
Delaware corporation. Id. at 191-94, 97 S. Ct. at 2573-75, 53 L.
Ed. 2d 689-92. Second, the plaintiff argued that the defendants'
positions as directors or officers of a Delaware corporation
provided sufficient minimum contacts with the state for it to
exercise personal jurisdiction. Id. at 213-14, 97 S. Ct. at 2584-
85, 53 L. Ed. 2d at 703-04.
The Supreme Court rejected both theories. As for the
plaintiff's quasi in rem argument, the Supreme Court concluded
that the stock ownership, alone, did not establish personal
jurisdiction:
[T]hat property is not the subject matter of this litigation, nor is the underlying cause of action related to the property. [The defendants'] holdings in Greyhound do not, therefore, provide contacts with Delaware sufficient to support the jurisdiction of that State's courts over [the defendants].
10 A-3701-14T3 [Id. at 213, 97 S. Ct. at 2584, 53 L. Ed. 2d at 703.]
Similarly, the plaintiff's second argument failed as the
defendants' positions within the corporation fell short of
establishing sufficient minimum contacts:
[This argument] does not demonstrate that appellants have "purposefully avail[ed themselves] of the privilege of conducting activities within the forum State," in a way that would justify bringing them before a Delaware tribunal. [The defendants] have simply had nothing to do with the State of Delaware. Moreover, [the defendants] had no reason to expect to be haled before a Delaware court.
[Id. at 216, 97 S. Ct. at 2586, 53 L. Ed. 2d at 705 (quoting Hanson, 357 U.S. at 253, 78 S. Ct. at 1240, 2 L. Ed. 2d at 1298).]
Guided by the Supreme Court's decision in Shaffer, we conclude
the trial court erred in exercising personal jurisdiction over
defendants. It is undisputed that defendants have never resided
in New Jersey; and neither Neuberger personally, nor Biolitec AG
engaged in business here. Biolitec, Inc. left New Jersey in 1990.
Moreover, plaintiffs do not contend that any of the alleged
"looting" schemes, which gave rise to their cause of action, took
place in New Jersey.
Neuberger's role as an original member of the board in 1989
is an insufficient basis for jurisdiction, as plaintiffs' claims
do not arise from, or relate to the incorporation itself. Cf.
11 A-3701-14T3 Sears, Roebuck & Co. v. Sears, 744 F. Supp. 1297, 1303 (D. Del.
1990) (finding that a corporation's formation of a subsidiary in
the forum state constituted "an act sufficient to confer personal
jurisdiction over it for causes of action related to that act of
incorporation") (emphasis added).
Similarly, Biolitec AG's ownership interest in Biolitec,
Inc., without more, fails to establish personal jurisdiction. See
Shaffer, supra, 433 U.S. at 213-15, 97 S. Ct. at 2584-86, 53 L.
Ed. 2d at 703-05; Cruz v. Ortho Pharm. Corp., 619 F.2d 902, 905
(1st Cir. 1980) (stating that jurisdiction over a subsidiary "does
not confer jurisdiction over its nonresident parent, even if the
parent is sole owner of the subsidiary"); cf. Pfundstein v. Omnicom
Group, Inc., 285 N.J. Super. 245, 254 (App. Div. 1995) (applying
general jurisdiction analysis and declining to impute actions of
subsidiary to corporate parent). Simply put, defendants lack the
required minimum contacts to justify haling them into court here.
We also part company with the trial court's reliance on
Armstrong, supra, and Delaware law. In Armstrong, the Delaware
Supreme Court affirmed the trial court's exercise of personal
jurisdiction over nonresident directors of a Delaware corporation.
423 A.2d at 175-76, 179. The corporation did the minimum business
necessary to maintain its status as a Delaware corporation, and
none of the directors had any connection with the state besides
12 A-3701-14T3 their positions within the corporation. Id. at 175. However,
relying on 10 Del. Code Ann. § 3114,5 the court explained "[t]he
defendants accepted their directorships with explicit statutory
notice, via § 3114, that they could be haled into the Delaware
Courts to answer for alleged breaches of the duties imposed on
them by the very laws which empowered them to act in their
corporate capacities." Id. at 176. Finding § 3114 constitutional,
the court concluded that the statute was sufficient to confer
jurisdiction over the nonresident directors.6
However, New Jersey has no analog to § 3114 that would
establish personal jurisdiction over either Neuberger or Biolitec
AG. Plaintiffs suggest that the omission is "immaterial," because
our courts exercise personal jurisdiction to the fullest extent
the Constitution permits. See Avdel Corp. v. Mecure, 58 N.J. 264,
268 (1971). We disagree. The basis for jurisdiction in Armstrong
was not the Constitution; it was the adoption of a statute that
5 10 Del. Code Ann. § 3114 provides that any nonresident who accepts a directorship position with a Delaware corporation "consent[s] to jurisdiction in suits relating to the defendant's capacity as director." Id. at 175. 6 In reconciling its holding with Shaffer, the court explained, "[t]he only substantive difference for present purposes between Shaffer and the instant case is the existence of § 3114 as the basis of jurisdiction; we think that is sufficient to render the assertion of in personam jurisdiction constitutional in this case." Id. at 180.
13 A-3701-14T3 established consent to be sued in the forum state notwithstanding
constitutional limits outlined in Shaffer. Other courts have
relied on the absence of such a "consent-to-be-sued" statute and
found personal jurisdiction lacking in lawsuits against officers
and directors whose only contact with the forum state was their
position with a corporation incorporated there. See American
Freedom Train Found. v. Spurney, 747 F.2d 1069, 1074 (1st Cir.
1984) (comparing law of Massachusetts with that of Delaware and
Connecticut); Behm v. John Nuveen & Co., 555 N.W.2d 301, 306-07
(Minn. Ct. App. 1996) (comparing Minnesota and Delaware law). We
likewise find Armstrong distinguishable, based on the absence in
New Jersey of a statute like Delaware's.7
Finally, we briefly distinguish Pittsburgh Terminal Corp. v.
Mid Allegheny Corp., 831 F.2d 522 (4th Cir. 1987) and Springs
Industries, Inc. v. Gasson, 923 F. Supp. 823 (D.S.C. 1996), upon
which plaintiffs rely. In Pittsburgh Terminal Corp., the plaintiff
initiated a stockholder derivative action against nonresident
directors of a West Virginia corporation in a West Virginia court.
831 F.2d at 524. Although nonresidents, the Fourth Circuit noted
7 We also note that questions have been raised about the Delaware statute's constitutionality. See Eric A. Chiappinelli, The Myth of Director Consent: After Shaffer, Beyond Nicastro, 37 Del. J. Corp. L. 783, 818 (2013) ("Nicastro leaves no doubt that Delaware violates the Constitution when it asserts personal jurisdiction over fiduciaries under Section 3114.").
14 A-3701-14T3 the degree of contacts the directors had with the state, id. at
524, and found it significant that the corporation conducted
business exclusively in West Virginia. Id. at 528 ("Unlike
Schaffer, this is not a case where the corporation is a phantom
resident of the chartering State."). Similarly, in Springs
Industries, the plaintiff filed fraud and civil conspiracy claims
in South Carolina against a nonresident director of South Carolina
corporations. 923 F. Supp. at 824-25. Although the director's
tortious acts took place out of state, because the act was causally
related to the plaintiff's injury within South Carolina, the court
found that there were sufficient grounds for it to exercise
personal jurisdiction. Id. at 827.
Here, however, defendants have no identifiable contacts with
New Jersey and, more importantly, Biolitec, Inc. has not done
business in the state in over twenty-five years. Additionally,
none of the alleged injuries sustained took place in New Jersey.
Since defendants lacked the minimum requisite contacts, the trial
court's exercise of personal jurisdiction was not warranted.
Reversed. We do not retain jurisdiction.
15 A-3701-14T3