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.
-vs- Index #H-2244
SYNTEX LABORATORIES, INC., a
Corporation; SYNTEX CORPORATION,
MISERENDINO, KRULL & FOLEY
(Paul A. Foley, Esq. of
Counsel) for Plaintiffs
LESTER, SCHWAB, KATZ &
DWYER (Jennifer E. Beinstock,
Esq. of Counsel) for
DECISION AND ORDER
This is a motion to add as a defendant, Syntex Corporation ("Corporation"), a Panamanian corporation with its sole US office in Palo Alto, California. The Corporation challenges jurisdiction claiming it cannot be reached by New York long arm statute.
Infant twins allegedly suffered brain damage from their infant formula, Neo-Mull-Soy, which plaintiffs claim was not formulated correctly by defendant, Syntex Laboratories, Inc. ("Laboratories").
Syntex Corporation owns Syntex USA which owns Syntex Laboratories.
Plaintiff has the burden of establishing jurisdiction under CPLR §302(a)(3)(ii) by 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 or expected its actions would have consequences within New York, and (4) derives substantial revenue from interstate or international commerce. FANTIS FOODS, INC. V. STANDARD IMPORTING, 49 NY2d 317, 325, 425 NYS2d 783. LAMARR V. KLEIN, 35 AD2d 248, 315 NYS2d 695, 697 (1970), affirmed 30 NY2d 757. However, when the issue of jurisdiction is to be 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).
To establish the requirement that the non- domiciliary committed a tort outside New York, the question to be decided is not actual liability, but whether the defendant has committed any act which gives rise to a tort claim. LAMARR, supra.
The Fourth Department in PORTER V. LSB INDUSTRIES, INC., 192 A.D.2d 205, 600 NYS 2d 867, (1993) held that the parent-subsidiary relationship is insufficient to confer personal jurisdiction unless there is a showing "that the subsidiary is in fact, merely a department of the parent." Attached to the affidavit of Lawrence B. Clark, Esq. were copies of several documents and testimony obtained in two Alabama cases against Syntex Corporation which clearly established that Corporation not only provided numerous significant regulatory, legal, and quality control services to Laboratories, but that Laboratories literally was a department of Corporation. According to the affidavit and the supporting papers:
Corporation provides Laboratories the following: 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
e. Reviewing Neo-Mull-Soy promotional literature
for compliance with regulations;
f. Reviewing information furnished to the
Physician's Desk Reference for regulatory
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
Corporation provides to Laboratories 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.
For a critical part of the life of the product, Corporation provided internal auditing services to Laboratories. From September 1978 through the recall of the oversight of Laboratories' quality control was the responsibility of Corporation's Quality Assurance and Technical Services (QATS) which was headed by Hyman Mitchner, formerly Vice-President of Quality Control for Laboratories. 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
c. Assisting in development or modification of
d. Developing a central file for product
e. Establishing Quality Assurance and Good
Manufacturing Practices policies;
f. Providing educational materials to quality
g. Consultation services in quality control
Plaintiffs assert that these activities by Corporation were essential to the distribution of defective formula; were performed negligently; that the torts committed by Corporation outside New York justify longarm jurisdiction over Corporation.
Plaintiffs assert that these activities by Corporation were essential to the distribution of defective formula; were performed negligently; that the torts committed by Corporation justify longarm jurisdiction. Plaintiffs also assert that Corporation's negligent were a proximate cause of the plaintiff's injuries.
PORTER V. LSB INDUSTRIES, 192 AD2d 205, involved an action for injuries sustained while plaintiff was operating an allegedly defective "Rockland" lathe. Plaintiff tried to reach defendant with the long-arm statute because defendant was the registered owner of the trademark.
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 long arm 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. 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]).
The Court cites 4 factors to consider 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, Laboratories literally is a department of Corporation; Laboratories couldn't move its product across the street without Corporation's active efforts and approval; Corporation exercised undisputed legal, regulatory and quality control authority; Corporation retained management and fiscal controls; Corporation provided services to Laboratories that are critical prerequisites to marketing and distribution of the formula throughout the USA.
Corporation's control over Laboratories is so pervasive as to render Laboratories a department of Corporation. See CANNON MANUFACTURING CO. V. CUDAHY PACKING CO., 267 U.S. 333 (1925). "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."
If New Yorkers cannot reach a foreign parent corporation which is as involved as Corporation under the fact here 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 Corporation 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 Corporation did - and had to do - so that the product could be sold here?
Can anyone realistically doubt that Corporation and Laboratories intended to market and distribute the product to New York mothers, fathers and other infant caretakers? Corporation does 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 Corporation may be liable for its own acts. This Court agrees.
The affidavit of Carol J. Gillespie, corporate secretary, says Corporation's principle activity is to provide administrative functions, approve budgets and conduct financial relations for itself and subsidiaries.
This affidavit doesn't tell the whole story. Management dictates, quality control, labeling, formula changes; all the approvals, procedures identified by the Clark affidavit that must go through Corporation are significantly more than mere administrative detail. Moreover, these are continuous activities directed to all states where the product is being marketed.
Certainly Corporation 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.
Corporation argues it receives no revenues in NY, but, its quality control, labeling, formula changes related to FDA distributed and marketing, produces revenues to Laboratories, some of which flow to benefit Corporation.
But for Corporation'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. These and other actions by Corporation are the basis for plaintiff's claim.
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:
"...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.
Corporation surely knew that its services provided to Laboratories were essential to the marketing and distribution of the formula and thus would have consequences in New York; thus the third longarm jurisdictional requirement is met.
The final element to establish longarm jurisdiction, is that Corporation derives substantial revenue from interstate or international commerce is virtually conceded.
Laboratories is the sole peddler, marketer, advertiser, and distributer of the formula, but, as meticulously outlined above, Corporation provides a number of services so critical to Laboratories activities that it couldn't sell one container of formula without Corporation involvement. There is no doubt Laboratories could not function without the services provided by Corporation.
Corporation controls Laboratories' activities "in significant ways." Those activities are so tied into license, quality control, 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, all of which are provided by Corporation. We are dealing with a product targeted for babies - a product affecting their health and well being.
Corporation and Laboratories knew very well that New York state and its public relied on FDA approval of this product. This reliance was no surprise to Corporation.
The leading case is INTERNATIONAL SHOE CO. V. WASHINGTON ("Shoe"), 326 US 310, 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.
It further 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 Corporation to escape having to account for its acts connected with the formula beginning with getting FDA approval.
New York has a "manifest interest" in providing a forum for parents and babies 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. Laboratories represents it obtained that approval when in fact, known only to Corporation, Laboratories and the FDA, approval was granted by the efforts of Corporation.
FDA approval, quality control, marketing and all the other services outlined in the Clark affidavit are too closely tied together to permit Corporation to escape the consequences of its acts.
In FANTIS FOODS, INC.V. STANDARD IMPORTING, supra 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.
In the case of COMPUTERIZED RADIOLOGICAL SERVICES, INC. V. SYNTEX CORPORATION AND SYNTEX ANALYTICAL INSTRUMENTS, INC., 595 F.Supp 1495 (1984) E.D. N.Y., 1984, Syntex Corporation admitted liability for its wholly owned subsidiary. The case was held governed by New York Law, though the manufacturer was in California even though the underlying contract was governed by California Law by choice of the parties. An appeal on unrelated issues was decided by the Circuit Court of Appeals, 786 F.2nd (2nd Cir. 1986).
Here, Syntex Corporation has availed itself of the privilege of orchestrating activities within the State of New York, thus invoking the benefits and protection of the laws in respect of the activities of one of its wholly owned subsidiaries. It would be offensive of "traditional notions of fair play and substantial justice" to say that an alien corporation may enter and submit to jurisdiction governed by New York Law and hold that in another of its activities through another of its subsidiaries claim it has no contacts with the forum.
If Corporation is not subject to New York's jurisdiction, plaintiffs, will not be able to effectively pursue a prospective defendant whose acts (or nonaction) may have been a proximate cause of their injuries.
The decision to this point is predicated on the facts in the Lawrence Clark affidavit and the testimony and documents involved in the Alabama cases. Although that testimony and documents could not be introduced at trial here without more, they do create a legitimate basis for the conclusions drawn by this Court. Thus, plaintiffs have made out a prima facie case of jurisdiction under the standards set by BEACON ENTERPRISES, INC. V. MENZIES, and HOFFRITZ FOR CUTLERY, INC., supra.
Nevertheless, the affidavits of Jennifer E. Bienstock, Esq. and Carol J. Gillespie, Corporate Secretary of Corporation, and the recent decision of the Fourth Department SCHULTZ v. MARY KAY HYMAN, et al, 607 NYS2d 824, decided February 4th, prompt this Court, pursuant to CPLR 2218, to direct a separate trial of the issue of personal jurisdiction of Corporation.
The motion to amend the complaint to bring in Syntex Corporation is reserved, pending a trial on jurisdiction pursuant to CPLR 2218.
ORDER OF THE COURT
The Motion of plaintiff to amend the complaint to add Syntex Corporation is reserved, pending a hearing pursuant to CPLR 2218.
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 27, 1994
Mayville, New York
Justice of Supreme Court