In FDASmart, Inc. v. Dishman Pharmaceuticals and Chemicals Limited, et al., 2016 N.J. Super. LEXIS 157 (App. Div. Dec. 29, 2016), the plaintiff (a Delaware corporation) and the defendant (an Indian corporation) were negotiating a contract for the purchase of the defendant's pharmaceutical manufacturing facility, which ultimately went awry. The plaintiff filed a lawsuit for breach of contract in New Jersey. The defendant filed a dismissal motion alleging that personal jurisdiction was lacking due to its insufficient contacts with the State of New Jersey. The Trial Court ruled that because the defendant corporation owned a subsidiary corporation in the State New Jersey (an alter ego) sufficient continuous and systematic activities existed to confer general jurisdiction over the defendant corporation.
Reversing, the Appellate Division held that the record lacked sufficient proof that the subsidiary was indeed an "alter ego" of the parent company. Although commonality of ownership existed between the parent and subsidiary, the Appellate Division held that the mere overlapping of the company's board of directors was insufficient to justify a "piercing of the corporate veil." The Court noted that the subsidiary was not financially dependent on the parent company, there was no interference with the selection of its personnel and both the parent and subsidiary were distinct, equal entities engaging in arms-length transactions. There was also no evidence that the parent company controlled the subsidiary's marketing and operational policies. As a result, the Appellate Division concluded that the Trial Court erred in finding that the defendant's subsidiary corporation was an "alter ego" and accordingly concluded that general jurisdiction in New Jersey was lacking.
Comment: The successful jurisdictional objection raised in this commercial dispute can serve as a potent defense for those out-of-state defendants with no contacts in New Jersey. This case speaks for the proposition that mere corporate ownership does not necessarily give rise to an "alter ego" for purposes of conferring personal jurisdiction absent an actual showing of domination and control by the corporate parent of its subsidiary.
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Sara L. De Long