Escude Cruz v. Ortho Pharmaceutical Corp.

• Decision Date: 26 March 1980
• Docket Number: No. 79-1297,79-1297
• Citation: 619 F.2d 902
• Parties: Jose F. ESCUDE CRUZ et al., Plaintiffs-Appellants, v. ORTHO PHARMACEUTICAL CORP. et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 902

619 F.2d 902

Jose F. ESCUDE CRUZ et al., Plaintiffs-Appellants, v. ORTHO PHARMACEUTICAL CORP. et al., Defendants-Appellees.

No. 79-1297.

United States Court of Appeals First Circuit.

Argued Nov. 5, 1979.

Decided March 26, 1980.

Ernesto Maldonado-Perez, with whom Maldonado & Ortiz, San Juan, P. R., was on brief, for plaintiffs-appellants.

Manuel A. Guzman, Guaynabo, P. R., with whom McConnell, Valdes, Kelley, Sifre, Griggs & Ruiz-Suria, San Juan, P. R., was on brief, for defendants-appellees.

Before CAMPBELL and BOWNES, Circuit Judges, CLARKE, ^* District Judge.

BOWNES, Circuit Judge.

The jurisdictional question before us arises from a diversity personal injury action against Ortho Pharmaceutical Corporation (OPC), a New Jersey corporation, and its officers and directors, all residents of New Jersey. OPC is the sole owner of Ortho Pharmaceuticals, Inc. (OPI), a Puerto Rican corporation, where plaintiff-appellant was employed. Plaintiff claims that he was contaminated while working at OPI causing loss of sexual appetite, a reduction in his sperm count so as to make him unable to father a child and enlargement of his chest so that it resembled that of a woman. He alleges that this was due to the negligence of defendants in that they failed to warn him of the danger involved in his work or take precautions against it. He and his wife seek a total of $8,000,000 in damages. Because the injury he complains of is work-related, his direct employer, OPI, is immune from suit under 11 L.P.R.A. § 21, the Puerto Rico Workmen's Compensation Act. Jurisdiction over the defendants is predicated on Puerto Rico's long-arm statue, P.R. Laws Ann. tit. 32, App. II R. 4.7.

The district court found insufficient contacts between the corporate defendant, the individual defendants, and the forum under Puerto Rico's long-arm statute and dismissed for lack of jurisdiction. ¹ We affirm.

Puerto Rico's long-arm statute provides two possible independent bases for jurisdiction in this case:

(a) Where the person to be served is not within Puerto Rico, the General Court of Justice of Puerto Rico shall have personal jurisdiction over said nonresident as if he were a resident . . . if the action or claim arises as a result of the following:

(1) Such person or his agent carries out business transactions within Puerto Rico; or

(2) Executes by himself or through his agent, tortious acts within Puerto Rico (.)

P.R. Laws Ann. tit. 32, App. II R. 4.7.

The burden of proving the facts necessary to sustain jurisdiction is on the plaintiff. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 56 S.Ct. 780, 80 L.Ed. 1135 (1936); Chem Lab Products, Inc. v. Stepanek, 554 F.2d 371 (9th Cir. 1977); Product Promotions, Inc. v. Cousteau, 495 F.2d 483 (5th Cir. 1974).

Both subsections (1) and (2) of the Puerto Rico rule have at their core an inquiry into whether a nonresident defendant has sufficient contacts with the forum so as to justify subjecting him to its courts' jurisdiction. World-Wide Volkswagen Corporation v. Woodson, District Judge of Creek County, Oklahoma, --- U.S. ----, 100 S.Ct. 559, 564, 62 L.Ed.2d 490 (1980); Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958); International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). Considerations of "fair play and substantial justice" require in each case a careful scrutiny of the defendant's activities. International Shoe at 316, 66 S.Ct. at 158. If defendant has purposely availed himself of the privileges and protections of a state's laws, and he ought reasonably to foresee that his activities may have potential consequences in that state that would require him to defend an action there, he will be amenable to in personam jurisdiction. World-Wide Volkswagen Corporation, supra; Hanson v. Denckla, supra; Commodities World International Corp. v. Royal Milc, Inc., 440 F.Supp. 1373, 1378-80 (D.P.R.1977).

In A. H. Thomas Co. v. Superior Court, 98 P.R.R. 864 (1970), the Supreme Court of Puerto Rico, relying on Hanson v. Denckla, supra; McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957); and International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), adopted a three-pronged test for determining whether in personam jurisdiction can be asserted over a nonresident. One, there must be an act done or consummated within the forum by the nonresident defendant. Physical presence is not necessary; the act or transaction may be by mail. Two, the cause of action must arise out of the defendant's action within the forum state. Three, the activity linking defendant, forum and cause of action must be substantial enough to meet the due process requirements of "fair play and substantial justice." 98 P.R.R. at 870.

Whether defendant's contact with the forum is described as an "affirmative act" or "purposeful availment," the inherent foreseeability of consequences is one of the keystones of personal jurisdiction. Vencedor Manufacturing Co. v. Gougler Industries, Inc., 557 F.2d 886, 891-92 (1st Cir. 1977). That the cause of action against a nonresident must have resulted from the defendant's activity makes it clear that not any act of the defendant within the state will suffice. There must be some rational nexus between plaintiff's claim and the activity of the nonresident defendant before it is constitutionally permissible to hold him amenable to suit in that state's courts.

We first examine the question of jurisdiction as to OPC. Appellant claims Rule 4.7(a)(1) confers jurisdiction on OPC based on its business transactions within Puerto Rico. Appellant points to two activities connecting OPC with Puerto Rico. First, he asserts that OPC, as sole owner of OPI, is the company ultimately enriched by any benefits inuring to OPI through its Puerto Rican operations. Second, appellant focuses on the fact that in 1969 OPC applied for and was granted a trademark in Puerto Rico by the Commonwealth's Department of State.

The mere fact that a subsidiary company does business within a state does not confer jurisdiction over its nonresident parent, even if the parent is sole owner of the subsidiary. Cannon Manufacturing Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925); Blount v. Peerless Chemicals (P.R.) Inc., 316 F.2d 695 (2d Cir.), cert. denied sub nom., Colbert v. Peerless Chemicals (P.R.) Inc., 375 U.S. 831, 84 S.Ct. 76, 11 L.Ed.2d 62 (1963). There is a presumption of corporate separateness that must be overcome by clear evidence that the parent in fact controls the activities of the subsidiary. Bendix Home Systems, Inc. v. Hurston Enterprises, 566 F.2d 1039 (5th Cir. 1978); Blount v. Peerless Chemicals (P.R.) Inc., supra. Under Puerto Rico law, the requirement for piercing the corporate veil is that "strong and robust evidence" be produced showing the parent to have that degree of control over the subsidiary as to render the latter a mere shell for the former. San Miguel Fertilizer Corp. v. P.R. Drydock & Marine Terminals, 94 P.R.R. 403, 409 (1967). "Jurisdiction over the parent therefore becomes unfair to the extent that the independence of the local subsidiary is a reality." Blount v. Peerless Chemicals (P.R.) Inc., 316 F.2d at 699. As we said in the analogous context of determining diversity jurisdiction, the fact that the parent may own all of the stock of the subsidiary and even maintain control incident to stock ownership does not justify ignoring the separateness of the two corporations. de Walker v. Pueblo International, Inc., 569 F.2d 1169, 1173 (1st Cir. 1978). In order to find that jurisdiction over the subsidiary results in jurisdiction over the nonresident parent, plaintiff must show that the parent exercised the type of control "necessary to ascribe to it the activities of the subsidiary." Product Promotions, Inc. v. Cousteau, 495 F.2d at 493. Therefore, whether the subsidiary is only an empty shell is a question of fact, and allegations of interlocking directorates and stock ownership will not alone suffice.

Appellant has done no more than make conclusory allegations about the relationship between OPC and OPI. As the district court correctly noted:

It may be very true that the parent ultimately reaps the benefits of the subsidiary's business but such is always the case when all the stock evidencing ownership is in a corporation controled (sic ) by the same entity. While this would support proof of a close business relationship it does not, without more, demonstrate that corporate forms were entirely disregarded.

Moreover, appellant's argument that OPI is either the agent or alter ego of OPC, if accepted, would defeat his substantive claim. OPC would then in fact be plaintiff's employer and the Puerto Rican workmen's compensation statute would immunize it from suit. Appellant cannot have it both ways.

The trademark obtained by OPC in Puerto Rico is not a sufficient minimum contact to confer personal jurisdiction. Although it was an affirmative act and a purposeful availment of the protection of Puerto Rico's laws, it does not bear any relationship to the cause of action. There is no logical nexus between the OPC Puerto Rican trademark and the operations of OPI six years later that allegedly injured plaintiff. Considerations of "fair play and substantial justice" demand that personal jurisdiction not be based on a single contact with the forum, wholly unrelated to the plaintiff's claim. See generally World-Wide Volkswagen Corporation v. Woodson, District Judge of Creek County, Oklahoma, --- U.S. ----, 100 S.Ct. 559, 62 L.Ed.2d 490, and Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977). Moreover, the Puerto Rico long-arm statute itself requires that plaintiff's claim arise as a result of "business transactions within Puerto Rico." The OPC trademark, without more, does not meet this requirement.

In order to meet the test of Rule 4.7(a)(2), a...