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Foreign Companies (India) Establishing U.S. Subsidiaries – Some Jurisdictional Considerations (New Jersey)

The below post was co-authored by Steve Karg and Bob Gabrielski.

Last week, a first level appellate court in New Jersey issued an opinion for publication discussing the potential grounds for finding jurisdiction over a foreign parent corporation when its wholly-owned subsidiary has its principal place of business in New Jersey.  In FDASmart v. Dishman Pharmaceuticals and Chemicals Limited, App. Div. Docket No. A-2800-15T3, the plaintiff sued an Indian parent company and its wholly-owned New Jersey subsidiary in the Superior Court of New Jersey.   The Indian parent company moved to dismiss the case against it based upon a lack of personal jurisdiction.  Fortunately for the Indian parent in this case, the appellate panel found that personal jurisdiction did not exist.

The New Jersey Appellate Division opinion gives some insight into how a New Jersey court may analyze whether personal jurisdiction exists over a foreign parent when a wholly owned subsidiary has its principal place of business in New Jersey.   In FDASmart, the panel first confirmed that the Indian parent was not “at home” in New Jersey, because it was neither incorporated in New Jersey, nor did it have its principal place of business here.  Next, the panel reviewed whether “the activities of [the subsidiary] in New Jersey should be attributed to its [Indian parent] for jurisdictional purposes under an alter ego theory.”    The panel noted that mere ownership of the subsidiary was not enough to impute its contacts to the parent.  The panel then examined whether the subsidiary might be considered an “alter ego” of the parent (a “flip-side” analysis) for the purpose of imputing its New Jersey contacts to the parent.  The panel noted that, to find the subsidiary to be an alter ego of the parent, the Plaintiff had to establish that (1) “the parent so dominated the subsidiary that it had no separate existence, but was merely a conduit for the parent,” and (2) “adherence to the fiction of separate corporate existences would perpetrate a fraud or injustice, or otherwise circumvent the law.” (citation omitted).

In determining whether the Plaintiff met the first prong (domination), the panel considered as factors any: “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.” (citation omitted).  Although there was some evidence of common ownership, the panel stated that “dominance ‘cannot be established by overlapping boards of directors’” (citation omitted), and ultimately found that “plaintiff [was] unable to meet its burden of proving [the parent’s] dominance of its subsidiary in order to pierce the corporate veil.”   Because Plaintiff did not meet its burden on the first prong, the Court did not consider the second prong (fraud or injustice).

While this post summarizes the panel’s analysis and provides general insight, a more detailed read of its opinion, as well as a more thorough review of the applicable law, is required if you are considering setting up a New Jersey subsidiary to a foreign company.  Note that this new opinion is subject to review by a higher court.  Finally, the opinion focused on general jurisdiction because the lower court and the appellate panel did not believe that there was any specific jurisdiction over the parent.  Specific jurisdiction is generally implicated when a party’s activities in the jurisdiction specifically result in a claim.  Although this opinion does not provide all of the answers to someone looking to set up a New Jersey subsidiary to a foreign company, it is a good place to start.

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