STATE OF NEW YORK

SUPREME COURT : COUNTY OF CHAUTAUQUA


 

BRUCE BENSON, Individually and

as Parent and Natural Guardian

OF KINSEY L. BENSON AND KARA M.

BENSON, Infants,


Plaintiffs,


-vs- Index #H-2244


SYNTEX LABORATORIES, INC., a

Corporation; SYNTEX CORPORATION,

a corporation,


Defendants.


 



MISERENDINO, KRULL & FOLEY

(Paul A. Foley, Esq. of

Counsel) for Plaintiffs



LESTER, SCHWAB, KATZ &

DWYER (Jennifer E. Beinstock,

Esq. of Counsel) for

Defendants



DECISION AND ORDER



GERACE, J.



This is a motion to add Syntex Corporation ("Corp") as a defendant, increase the ad damnum clause and amend the complaint.


Infant twins apparently suffered brain damage from their infant formula, Neo-Mull-Soy, resulting in learning disabilities. Plaintiff's allege the formula was not formulated correctly by defendant, Syntex Laboratories, Inc. "Labs").


In terms of structure, Syntex Corporation ("Corp") wholly owns Syntex USA which wholly owns a number of subsidiaries, including Syntex Labs. The Corporation is a Panamanian corporation which has only one office in the United States, in Palo Alto, California.


CPLR 302(a)(3) allows a reach against a non-resident defendant who commits a tortious act without the state causing injury to person or property within the state arising from the act, if the defendant:


(i) regularly does or solicits business, or ENGAGES IN ANY OTHER PERSISTENT COURSE OF CONDUCT, or derives substantial revenue from goods used or consumed or services rendered, in the state, or

(ii) EXPECTS OR SHOULD REASONABLY EXPECT THE ACT TO HAVE CONSEQUENCES IN THE STATE AND DERIVES SUBSTANTIAL REVENUE FROM INTERSTATE OR INTERNATIONAL COMMERCE.


Plaintiffs' claims against Syntex Corporation (Corp) are based upon Corp's independent, not vicarious, liability and arise out of Corp's tortious acts committed outside New York. Corp expected or should have expected that its actions would have consequences within New York and derives substantial revenue from interstate or international commerce. Therefore, in personam jurisdiction is proper under New York CPLR §302(a)(3)(ii) and comports with the due process clause of the Fourteenth Amendment.


Establishing jurisdiction under CPLR §302(a)(3)(ii) requires a showing that the non-domiciliary defendant (1) committed a tort outside New York, (2) injured plaintiffs in New York, (3) should have reasonably foreseen New York consequences, and (4) derives substantial revenue from interstate or international commerce. FANTIS FOODS, INC. V. STANDARD IMPORTING, 49 NY2d 317, 325, 425 NYS2d 783, 786, 402 NE2d 122, 124-5 (C.A.N.Y. 1980).


The plaintiff has the burden of establishing jurisdiction. LAMARR V. KLEIN, 35 AD2d 248, 315 NYS2d 695, 697 (1970), affirmed 30 NY2d 757, 333 NYS2d 421 (C.A.N.Y. 1972). However, when the issue of jurisdiction is decided on the pleadings and without discovery, the plaintiff has only to make out a prima facie case of jurisdiction. BEACON ENTERPRISES, INC. V. MENZIES, 715 F.2d 757, 768 (2nd Cir. 1983). Furthermore, where no evidentiary hearing has been held, all pleadings and affidavits must be construed most favorably to the plaintiffs. HOFFRITZ FOR CUTLERY, INC. V. AMAJAC, LTD., 763 F.2d 55, 57 (2nd Cir. 1985).


In establishing the jurisdictional requirement that the non-domiciliary committed a tort outside of New York, the question to be decided is not actual liability, but whether the defendant has committed any act which gives rise to a claim of tort. LAMARR, 315 NYS2d 697, 698. Plaintiffs established in Lawrence B. Clark's affidavit in support of its motion to amend the complaint that Corp provided numerous significant regulatory, legal, and quality control services to Syntex Laboratories, Inc. (Labs).


Syntex Corporation (Corporation) provides to Syntex Laboratories (Labs) the following services of Corporate Regulatory Affairs:

a. Interaction with the FDA on behalf of Labs;

 

b. Reviewing Neo-Mull-Soy labels for compliance

with regulations and corporate policy and

approval of Neo-Mull-Soy labels;


c. Establishing an approval process for label

changes for infant formulas;


d. Reviewing Neo-Mull-Soy advertisements for

compliance with regulations and corporate

policy;


e. Reviewing Neo-Mull-Soy promotional literature

for compliance with regulations;


f. Reviewing information furnished to the

Physician's Desk Reference for regulatory

compliance;


g. Reviewing materials used in training salesmen;


h. Performing audits of Labs' plants in conjunction

with the Quality Assurance department for

compliance with Good Manufacturing Practices;


i. Receiving notification of formula changes;


j. Participating as a member of the Quality

Assurance Advisory Committee which made the

decision to recall the product; and


k. Coordinating recall efforts.


Corporation provides the only personnel used for regulatory


compliance.



Corporation provides to Labs the following services


of the Legal Department:


a. Reviewing Neo-Mull-Soy advertisements;


b. Reviewing materials used in training salesmen;


c. Receiving notification of formula changes;


d. Participating as a member of the Quality

Assurance Advisory Committee which made the

decision to recall the product.



It is plaintiffs' contention that Corporation's activities in the regulatory affairs area, action or inaction of the Legal Department resulted in the use of sales manuals which were fraudulently deceptive. The misrepresentations in these manuals were just the sort of information that Syntex expected its salesmen to pass along to doctors and other health providers.


For a critical part of the life of the product, Corporation provided internal auditing services to Labs. From September 1978 through the recall of the products, oversight of Labs' quality control was the responsibility of Corp's Quality Assurance and Technical Services (QATS) which was headed by Hyman Mitchner, formerly Vice-President of Quality Control for Labs. This group's responsibilities included the following:

a. Auditing Syntex plants for conformance to

industry, regulatory and internal standards;


b. Assisting in analysis of problems and quality

control/product failures;


c. Assisting in development or modification of

specifications;


d. Developing a central file for product

information;


e. Establishing Quality Assurance and Good

Manufacturing Practices policies;


f. Providing educational materials to quality

control; and


g. Providing consultation services in quality

control.


Plaintiffs assert that these actions by Corp were essential to the distribution of defective formula and were performed negligently, for purposes of the assertion of longarm jurisdiction over Corp, that Corp committed a tort outside New York.


Plaintiffs also assert that Corp's negligent acts occurring outside the state of New York were a proximate cause of the injuries that plaintiffs suffered within New York. Corp's negligent provision of services to Labs resulted in the marketing and distribution of defective Neo-Mull-Soy and Cho- Free in New York which caused plaintiffs' injuries when they drank it in New York. Where an allegedly harmful substance is ingested in New York while the imbiber is in the state, the resulting injuries are deemed to occur at the place of exposure, not the place where the injury-causing substance was manufactured. In re DES CASES, 789 F.Supp. 552, 570 (E.D.N.Y. 1992). Thus plaintiffs' injuries as a result of drinking Neo- Mull-Soy in New York occurred in New York and the second longarm jurisdictional element is satisfied.


The third element of longarm jurisdiction under CPLR §302(a)(3)(ii) requires that the non-domiciliary defendant should have reasonably foreseen that his actions would have consequences in New York. The court in ALLEN V. AUTO SPECIALTIES MFG. CO., 45 AD2ds 331, 357 NYS2d 547, 550 (1974), discussed this requirement:

"The test of whether a defendant expects or

should reasonably expect his act to have

consequences within the State is an objective

rather than a subjective one...Moreover, the

statutory requirement of foreseeability relates

to forum consequences generally and not to the

specific event which produced the injury within

the State. The statute does not require the

defendant to foresee the specific consequences

in New York of its allegedly tortious act."


All that is required is that it be reasonably foreseen, instead of fortuitous, that the defendant's actions could cause some potential consequences in New York. Id. Corp surely knew that its regulatory, legal, and quality control services provided to Labs were essential to the marketing and distribution of the formula and thus would have consequences in New York (and every state in which the formula was sold), thus the third longarm jurisdictional requirement is met.


The final element that must be shown to establish longarm jurisdiction under CPLR §302(a)(3)(ii) is that Corp derives substantial revenue from interstate or international commerce. Corp is a Panamanian corporation with an office in Palo Alto, California. (Gillespie Aff. ¶ 5). Corp wholly owns Syntex U.S.A. which in turn wholly owns a number of subsidiaries, including Labs. (Id. at ¶ 6). Corp provides administrative functions, approves budgets, and conducts financial relations for its subsidiaries in the United States. (Id. at ¶ 8). Based on these facts, it is apparent that Corp derives substantial revenue from interstate and or international commerce.


If the required statutory elements of longarm jurisdiction are established, the assertion of longarm jurisdiction will be proper if it comports with the due process clause of the Fourteenth Amendment. Due process requires that in order to assert in personam jurisdiction over a nonresident defendant, the defendant must have certain minimum contacts with the forum state so that the "maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'"INTERNATIONAL SHOE CO. V. STATE OF WASHINGTON, ETC., 326 U.S. 310, 316 (1945).


Labs is the sole peddler, marketer, advertiser, and distributer of the formula, but, as meticulously outlined above, Corp provides a number of services so critical to Labs activities that it couldn't sell one container of formula without Corp involvement. There is no doubt Labs could not function without the services provided by Corp.


Corp controls Labs' activities "in significant ways." Those activities are so tied into marketing and distribution that this Court cannot separate them.


We are not dealing with shoe salesmen, french fries and hamburgers, VWs, Greek Feta cheese or trademarks here; we are dealing with a product that cannot be marketed in New York without the formula review, quality control, and, regulatory compliance and approval by the FDA of the product, all of which are provided by Corp. We are dealing with a product targeted for babies - a product affecting their health and well being.


Corp and Labs knew very well that New York state and its public relied on FDA approval of this product. This reliance was no surprise to Corp.

 

The leading case is INTERNATIONAL SHOE CO. V. WASHINGTON ("Shoe"), 326 US 310, the classic law school case on the constitutional due process issues involved in long arm jurisdiction. SHOE requires "minimum contacts" for jurisdiction. It holds there must be a concept of fair play and substantial justice. Fair play and substantial justice call for approval of jurisdiction in this case.


WORLD-WIDE VW CORP V. WOODSON, 444 US 286 and BURGER KING CORP V. RUDZEWICZ, 105 S.Ct 2174 maintain there must be fair warning to an out of state defendant so it might reasonably expect the possibility of a suit; the defendant must have purposefully directed activities at the forum state and the suit must result from injuries arising out of those activities. All these tests are met here.


Physical contacts with the forum state are not necessary "so long as a commercial actor's efforts are purposefully directed toward residents of another state."BURGER KING, supra. at 2184.


BURGER KING is cited by Syntex Corp for support, but, it actually is more supportive of Plaintiffs view. It holds that states have "manifest interest" in providing a forum for their residents to address grievances and where a party "purposefully derives benefit...it is unfair to be able to escape having to account for the consequences."


It would be grossly unfair to allow Corp to escape having to account for the consequences of all its acts connected with the formula, beginning with getting FDA approval to market the baby formula in New York.


New York has a "manifest interest" in providing a forum for mothers and babies (and fathers, too) who have been damaged by a defendant's extensive involvement in getting the damage producing product approved, seeing that it was labeled, and advertised to defendant's satisfaction, saw that the sales troops were trained, and continuously monitored the product.


HANSON V. DENCKLA, 357 US 235 is cited by Corp. It says: "It is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus involving the benefits and protection of its laws."


New York independently would not permit the sale of this formula without FDA approval. Its citizens rely upon that approval. Labs represents it obtained that approval when in fact, known only to Corp, Labs and the FDA, approval was granted by the efforts of Corp.


FDA approval, quality control, marketing and all the other services outlined in the Clark affidavit are too closely tied together to permit Corp to escape the consequences of its acts.


There are two significant New York cases on long arm jurisdiction. FANTIS FOODS, INC.V. STANDARD IMPORTING, 49 N.Y.2d 317, discusses CPLR 302 in detail. The Court of Appeals understandably did not permit a 302 long arm reach of a defendant in an action involving conversion of 1200 barrels of Feta cheese "in Greece or on the high seas".


The Court dismissed the action because the only connection between the claimed conversion and any injury or foreseeable consequences in New York was the domicile or residence of the injured party. We have much, much more connection and foreseeability of consequences here; much, much more compelling justification for long arm jurisdiction.


PORTER V. LSB INDUSTRIES, 192 AD2d 205, a 4th Dept case appears to be the most recent word on the subject of long arm jurisdiction. It involved an action sounding in strict products liability and negligence to recover for injuries sustained while plaintiff was operating an allegedly defective "Rockland" lathe. Plaintiff tried to reach defendant because defendant was the registered owner of the trademark.


The Court noted that the purpose of the trademark law is to protect the trademark owner from unfair competition; it is not an adjunct to the law of negligence or products liability; it only meant that the owner had "a marketing idea or concept."


The Court stressed that "(T)o establish the requisite contacts under the long-arm statute and the Due Process Clause, plaintiff must show that defendant regularly transacted or solicited business, engaged in any other persistent course of conduct, or otherwise " 'purposefully directed'" its activities at residents of the forum. . ."


The Court held that to allow a long arm reach for jurisdiction over a parent corporation, the parent's control over the subsidiary must be so complete that the subsidiary is merely a department; instrumentality; arm, of the parent; that there are indications of control by the parent. It said:

************************************

"A subsidiary will be considered a 'mere department' only if the foreign parent's control of the subsidiary is so pervasive that the corporate separation is more formal than real (Heller & Co. v Novacor Chems., 726 F Supp 49, 54, affd 875 F2d 856 [SD NY-applying New York law]). this citation needs

to be checked!!!

*************************************


The Court cites 4 factors regarding control: 1. Common ownership and presence of interlocking directorate and executive staff. 2. Financial dependency of subsidiary on parent. 3. Degree to which parent interferes in selection and assignment of subsidiary's executive personnel and fails to observe corporate formalities. 4. Extent of parent's control of subsidiary's marketing and operational policies.


At least two, if not three, of these factors are present here; in the real world, Labs is literally a department of Corp; Labs couldn't move its product across the street without Corp's active efforts and approval; Corp exercised undisputed legal, regulatory and quality control authority; Corp retained management and fiscal controls; Corp provided services to Labs that are critical prerequisites to marketing and distribution of the formula throughout the USA.


Corp's control over Labs is so pervasive as to render Labs a department of Corp.


If New Yorkers cannot reach a foreign parent corporation which is as involved as Corp in management; monitoring; FDA approvals; quality control; review of promotional materials; training salespeople; audits of production plants; review and approval of labels; review advertisements; review of materials sent to Physician's Desk Reference; if, under these facts, a parent corporation so involved in activity so necessary, so critical to the approval, distribution, marketing, monitoring a product obviously directed toward New York's babies through parents, caretakers and physicians, New York's babies may twice be victims, first by a negligent product, and the second time by denial of access to its courts for the negligence.

The issue here is: which parent is to be protected? A parent corporation as involved as Corp in insuring that a product intended for children is marketed and distributed all over the US? Or, the innocent parents of children crippled by a product intended for those children - parents who rely on the FDA approval, the advertising, the promotion, all the things Corp did - and had to do - so that the product could be sold here?


Can anyone realistically doubt that Corp and Labs intended to market and distribute the product to New York mothers, fathers and other infant caretakers?


They do not directly peddle the product, but if they did not provide these services, the product could not be marketed.


Plaintiff says this is not a case of vicarious liability, but, a case where the Corp is liable for its own acts. This Court agrees.


The affidavit of Carol J. Gillespie, corporate secretary, says Corp's principle activity is to provide administrative functions, approve budgets and conduct financial relations for itself and subsidiaries.

This is somewhat disingenuous. Quality control, labeling, formula changes; all the approvals, procedures identified by the Clark affidavit that must go through Corp are significantly more than mere administrative detail.


Moreover, these are continuous activities directed to all states where the product is being marketed.


Certainly Corp was not naive; it obviously could expect consequences (and benefits) from these activities throughout the United States. The CPLR says substantial revenues must be received but does not require that these revenues must relate to the particular activities of the defendant.


Corp argues it receives no revenues in NY, but, its quality control, labeling, formula changes related to FDA distributed and marketing, produces revenues to Labs, some of which flow to benefit Corp. This Court will take judicial notice of the fact that Corp is not a charitable organization.

But for Corp's actions, the product could not have been delivered, and because of its failure to act on their quality control information and authority, production of an allegedly harmful product was not halted; those and other actions by Corp are the basis for plaintiff's claim.

 

Corp's burden of defending this suit is slight. There is no doubt they would have been involved in the case even if this motion to include them had not been brought.


If Corp was not subject to New York's jurisdiction, plaintiffs, as a practical matter, will not be able to effectively pursue a prospective defendant whose acts (or nonaction) may have been a proximate cause of their injuries.

 

The motion to amend the complaint to bring in Syntex Corporation must be granted.

 

INCREASE AD DAMNUM


The request to increase the ad damnum clause should be denied, without prejudice. The only reason offered for the request is that outside counsel has advised that 2 million is inadequate and it should be increased to 5 million.


There is a total lack of support for the request; no new facts have surfaced since the case was sued in 1989.


To support an increase in ad damnum, a detailed affidavit on which the additional sum is based, reasons why the amount was not sought originally, and a strong affidavit of medical and legal merits should be provided.


REFORMULATING CAUSE OF ACTION


Plaintiffs wants to amend the complaint to add a 4th cause of action for negligence in reformulating and recalling the infant formula.


Syntex responds that in the answer to interrogatory 52, plaintiffs ceased consumption in August '79, the year the formula was recalled and it was reformulated THEREAFTER.


Plaintiffs have not denied this, nor provided any basis to support addition of this cause of action.

 

Labs also argues that the claim of negligence for failure to recall sooner than they did should be part of the first cause of action. This Court does not agree and will allow the amendment solely as to the timing of the recall, but not the reformulation.

 

The motion to amend to add the reformulation cause of action is denied.

WANTON CONDUCT


Plaintiffs also seek to add a 5th cause of action for wanton conduct in reformulating and recalling. The Court treats this request the same as plaintiff's recall and reformation motion re the 4th cause of action; allow as to recall but not as to reformulating.



ADDITION OF THE FATHER


The last amendment requested is to add claims in all causes on behalf of Bruce Benson, father. While the statute is tolled due to the infancy of the twins, it has passed for

the father. This must be denied.


ORDER OF THE COURT


The Motion of plaintiff to amend the complaint to add Syntex Corporation is granted.


The motion of plaintiff to increase the ad damnum clause is denied, without prejudice.


The motion of plaintiff to add a 4th and 5th causes of action as to recall and reformulation is granted as to recall, denied as to reformation.


The motion to add claims of the father is denied.


This is the Decision and Order of this Court. No further order shall be necessary. No costs to any party.


Dated: April 18, 1994

Mayville, New York



JOSEPH GERACE

Justice of Supreme Court