Alter Ego Theory Failed to Sustain Personal Jurisdiction Over Foreign Parent Corporation

FDASmart, Inc. v. Dishman Pharmaceuticals & Chemicals Ltd., 448 N.J. Super. 195 (App. Div. 2016).  Plaintiff filed an action for breach of contract against two defendants, Dishman Pharmaceuticals & Chemicals, Ltd. (“DPCL”), a company based in India, and its United States subsidiary, Dishman USA, Inc.  DCPL asserted that New Jersey courts had no personal jurisdiction over it.  After discovery on the jurisdictional issue had been taken, the Law Division granted partial summary judgment and ruled that there was personal jurisdiction.  Applying de novo review, the Appellate Division reversed that ruling in an opinion by Judge Currier.

Judge Currier explicated the basic principles underlying the law of personal jurisdiction, which in New Jersey extends to the outer limits of constitutional due process.  The bottom line was that because DCPL was not “at home” in New Jersey (that is, it is not incorporated here and does not have its principal place of business in this State), plaintiff had to show that DCPL “had continuous and systematic contacts with New Jersey so as to justify it being haled into New Jersey’s courts.”

Plaintiff argued that the activities of Dishman USA, Inc. in New Jersey should be attributed to DCPL, based on an alter ego theory.  The Law Division agreed.  Judge Currier, however, did not.

Only if plaintiff could offer proofs sufficient to justify piercing the corporate veil could an alter ego argument succeed.  To make that showing, plaintiff had to demonstrate either that DCPL “dominated” its United States subsidiary or that “adherence to the fiction of separate corporate existence would perpetrate a fraud or injustice, or otherwise circumvent the law.”  As Judge Currier went on to explain, the facts here did not support either of those ideas.

Alternatively, plaintiff argued that personal jurisdiction attached when plaintiff served process on a DCPL employee who came to New Jersey to be deposed in this case.  Judge Currier rejected that position.  Service of process cannot be used as a means to obtain long-arm jurisdiction over an out-of-state party “unless the underlying predicate of long-arm jurisdiction, adequate contact with the State, exists.”

Dishman USA, Inc. had sought dismissal of plaintiff’s complaint against it for failure to state a claim.  The Law Division denied that motion.  Judge Currier agreed with that ruling.  Accordingly, the case was remanded for further proceedings between plaintiff and Dishman USA, Inc.

This is the final post of 2016.  Happy new year to all!