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June 2010 Archives

June 16, 2010

No Jurisdiction In Exploding Beer Bottle Case Where Holding Company Did Not Exercise Pervasive Control Over Subsidiary Corporations

In Gallelli v. Crown Imports, LLC, ___ F.Supp.2d ___, 2010 WL 1177449 (E.D.N.Y. March 20, 2010), the parents of a child brought a personal injury action against multiple defendants, including a holding company, alleging that the child was injured when a bottle of Corona that was brewed, bottled and imported by the holding company's subsidiary exploded. The holding company, which is a Mexican company with its principal place of business in Mexico, sought leave to file a motion to dismiss based on lack of personal jurisdiction. The Court ordered the parties to engage in limited discovery on the jurisdictional issue prior to briefing the motion and, after discovery, the Court entertained the motion.

Plaintiff alleged personal jurisdiction over the holding company pursuant to CPLR 301 and/or 302(a)(3). Under CPLR 301, a foreign corporation is subject to jurisdiction in New York if it is "doing business" here. A foreign corporation is "doing business" in New York (for purposes of CPLR 301) if it "does business in New York not occasionally or casually, but with a fair measure of permanence and continuity." Factors to be considered include the existence of a New York office, the presence of bank accounts in New York, ownership of property in New York, and the presence of agents or employees in New York. Solicitation of business alone, however, is insufficient.

Moreover, a foreign corporation that is not "doing business" itself in New York may nevertheless be subject to jurisdiction under CPLR 301 based upon the acts of a related company that is doing business in New York. Specifically, if the related company is merely a department of the foreign defendant or the foreign defendant's agent, jurisdiction will be sustained.

Regarding the former, a subsidiary will be considered a "mere department" of the foreign defendant where the foreign defendant's control over the subsidiary is "pervasive enough that the corporate separation is more formal than real". Common ownership is essential, but alone, insufficient. Instead, the Court must also consider (i) the financial dependency of the subsidiary on the parent; (ii) the parent company's interference in the assignment of the subsidiary's key personnel; (iii) the observance (or lack thereof) of corporate formalities; and (iv) control by the parent of the day-to-day operations.

Under the agency theory of CPLR 301 jurisdiction, the plaintiff must show that the subsidiary "does all of the business which the parent corporation could do were it here by its own officials." The activities must also be important enough to the foreign corporation that in the absence of an agent, the foreign defendant would undertake to perform substantially services. Alternatively, the Court considers whether the subsidiary is carrying out its own business, or the business of the parent.

With these principles in place, the Court undertook its analysis and first determined that because the holding company does not have offices, employees or telephone listings in New York (or anywhere in the United States for that matter) it was not "doing business" in New York by itself. With respect to the "mere department" test, the Court held that "while there may be some overlapping executive personnel among certain of the corporate entities, there is no showing of common ownership that is a 'necessary prerequisite' to a mere department finding." The Court also determined that the holding company's business is best described as "the holding of stock in other companies" rather than any aspect of the beer brewing or distribution businesses. Because the subsidiaries carry out their own business (brewing, bottling, etc.) and not the investment business of the holding company, the subsidiaries could not be considered agents of the holding company under CPLR 301.

As for jurisdiction under CPLR 302(a)(3), the plaintiff was required to establish that the holding company, either personally or through an agent, committed a tortious act outside of New York that caused injury within New York. The plaintiff claimed that the tortious act was the manufacture of a defective Corona bottle in Mexico. Because the holding company did not manufacture the Corona bottle, the plaintiff was required to establish an agency relationship among the holding company and the bottle manufacturer. As discussed above, the Court determined that the holding company is not involved in the beer business, but instead, is in the business of investment. Accordingly, the plaintiff was unable to establish the requisite agency relationship in order to sustain jurisdiction under CPLR 302(a)(3).

Ultimately, the Court granted the holding company's motion and dismissed the complaint as against it. The Court's decision is likely form over function, however, as the plaintiff was given leave to amend in order to name additional defendants that were identified during the jurisdictional discovery.

Sean C. McPhee, Esq.

8th Judicial District Commercial Division Event for Justice Curran

The Business Torts and Employment Litigation Committee is collaborating with the Commercial and Federal Litigation Section, as well as the Bar Association of Erie County, in organizing an event honoring the outgoing 8th Judicial District Commercial Division judge in Buffalo (Justice Curran). It will be held on 6/24 at 5:30 at the Saturn Club.

Event Link
Event Write-Up

Justice Curran Bio

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(From left: Heath Szymczak, Beth Ann Bivona, Hon. John M. Curran, Sharon Porcellio, Hon. John A. Michalek, Mitch Katz)

About June 2010

This page contains all entries posted to Business Torts and Employment Litigation Blog in June 2010. They are listed from oldest to newest.

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