Benson v. Syntex Laboratories, Inc.

• Decision Date: 27 April 1994
• Parties: Bruce BENSON, Individually and as Parent and Natural Guardian of Kinsey L. Benson and Kara M. Benson, Infants, Plaintiffs, v. SYNTEX LABORATORIES, INC., a Corporation; Syntex Corporation, a Corporation, Defendants.
• Court: New York Supreme Court

Page 990

614 N.Y.S.2d 990

161 Misc.2d 822

Bruce BENSON, Individually and as Parent and Natural Guardian of Kinsey L. Benson and Kara M. Benson, Infants, Plaintiffs, v. SYNTEX LABORATORIES, INC., a Corporation; Syntex

Corporation, a Corporation, Defendants.

Supreme Court, Chautauqua County.

April 27, 1994.

Miserendino, Krull & Foley, Buffalo (Paul A. Foley, of counsel), for plaintiffs.

Lester, Schwab, Katz & Dwyer, New York City (Jennifer E. Beinstock, of counsel), for defendants.

JOSEPH GERACE, Justice.

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 N.Y.2d 317, 325, 425 N.Y.S.2d 783, 402 N.E.2d 122. The plaintiff has the burden of establishing jurisdiction. Lamarr v. Klein, 35 A.D.2d 248, 315 N.Y.S.2d 695, 697 (1970), affirmed 30 N.Y.2d 757, 333 N.Y.S.2d 421, 284 N.E.2d 576. 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, 213, 600 N.Y.S.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 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 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, 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 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. 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 long-arm jurisdiction over Corporation.

Porter v. LSB Industries, supra, involved an action for injuries from operation of 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:

"... 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 or arm, of the parent. It said:

"... 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 FSupp 49, 54, [1988], affd 875 F2d 856 [1989] [SD NY--applying New York law]."

The Court cites four factors to consider regarding control: 1. Common ownership, directors and/or staff. 2. Financial dependency. 3. Extent of selection and assignment of executive personnel. 4. Extent of control of marketing and operational policies.

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, 45 S.Ct. 250, 69 L.Ed. 634 (1925).

If New Yorkers cannot reach a foreign parent corporation which is as involved as Corporation under the facts in this case 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 principal 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 and all the approvals and procedures identified by the Clark affidavit that must go through Corporation; these are significantly more than mere administrative detail. Moreover, these are continuous activities directed to all states where the product is marketed.

Corporation was not naive; it obviously could expect consequences (and benefits) from these activities throughout the United States.

Corporation argues it receives no revenues in NY, but, its quality control, labeling, formula changes related to FDA distributed and marketing, produce revenues to Laboratories, some of which flow to benefit Corporation. The CPLR says substantial revenues must be received but does not require that these revenues must relate to the particular activities of the defendant.

But for Corporation's actions, the product could not have been delivered; because of its failure to act on their quality control information and authority, production of an allegedly harmful product was not...