Court Opinion

ID: 4112033
Source: CourtListenerOpinion
Date Created: 2016-12-29 15:10:44.031955+00
Date Added: 2024-06-11T14:45:29.643578
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE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