Mylan Laboratories, Inc. v. Akzo, N.V.

Citation2 F.3d 56
Decision Date19 August 1993
Docket NumberNo. 92-1826,92-1826
PartiesRICO Bus.Disp.Guide 8366 MYLAN LABORATORIES, INCORPORATED, Plaintiff-Appellant, v. AKZO, N.V., Defendant-Appellee, and Raj Matkari; Ashok Patel; Dilip Shah; Raju Vegesna; Mohammed F. Azeem; Charles Chang; David J. Brancato; Jin-Shung Chang; Walter Kletch; Jan T. Sturm; Pharmaceutical Basics, Incorporated; Par Pharmaceuticals, Incorporated; Quad Pharmaceuticals, Incorporated; American Therapeutics, Incorporated; Vitarine Pharmaceuticals, Incorporated; American Home Products Corporation; Quantum Pharmics, Limited; Steven Colton; Salvatore J. Pinella, Defendants.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

Judah Best, Debevoise & Plimpton, Washington, D.C., argued (W. Stephen Cannon, Joseph H. Gibson, Wunder, Diefenderfer, Ryan, Cannon & Thelen, on brief), for plaintiff-appellant.

Donald John Mulvihill, Cahill, Gordon & Reindel, Washington, DC, argued (Kathy Silberthau Strom, Scott A. Martin, on brief), for defendant-appellee.

Before ERVIN, Chief Judge, and MURNAGHAN and NIEMEYER, Circuit Judges.


ERVIN, Chief Judge:

We must decide whether a federal district court may assert personal jurisdiction over a foreign parent corporation solely because the parent's third-tier subsidiary corporation, over which the parent exerts no control, conducts business in the forum state. We hold that it may not.


On June 8, 1989 Mylan Laboratories, Inc. ("Mylan") brought this action in the United States District Court for the District of Columbia, seeking damages and injunctive relief for alleged violations of the federal antitrust laws, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961-1968, and the Maryland common law of unfair competition and malicious interference with business relations. Mylan's complaint named as defendants several manufacturers, sellers, and distributors of generic prescription drugs, including Akzo, N.V. ("Akzo"), a Dutch corporation having its principal place of business in the Netherlands, and Pharmaceutical Basics, Inc. ("PBI"), a Delaware corporation that maintains its principal place of business in Illinois. Mylan's complaint alleged that between 1984 and 1989 the defendants conspired to facilitate and accelerate the United States Food and Drug Administration's ("FDA") approval of their abbreviated new drug applications for generic drugs, or "ANDAs," and to delay or impede approval of ANDAs submitted by competing drug manufacturers, including Mylan.

Akzo promptly moved to dismiss Mylan's complaint for lack of personal jurisdiction. Before ruling on Akzo's motion, the district court found that venue was improper in the District of Columbia and ordered the case transferred to the District of Maryland pursuant to 28 U.S.C. Sec. 1406(a). 1 On August 15, 1991 the United States District Court for the District of Maryland issued a memorandum opinion and order dismissing all of Mylan's antitrust claims and a substantial number of its RICO claims. Although it did not dispose directly of Akzo's pending motion to dismiss for want of personal jurisdiction, the court stated that

Akzo is only named in Mylan's suit because it is the parent company of PBI; unlike Par, [another defendant], it is not alleged to have had any agents busily undermining the raison d'etre of the FDA.

Mylan Labs., Inc. v. Akzo, N.V., 770 F.Supp. 1053, 1077 n. 41 (D.Md.1991). Shortly after the Maryland district court's action, Akzo renewed its motion to dismiss for lack of personal jurisdiction.

After hearing oral argument on Akzo's motion, the district court read into the record a memorandum order holding that because it could not assert personal jurisdiction over Akzo, it was required to dismiss Mylan's complaint as to the Dutch corporation. See Mylan Labs., Inc. v. Akzo, N.V., No. R-90-1069, at 15 (D.Md. June 19, 1992) (oral opinion). In so ruling, the court relied upon the following findings of fact: (1) Akzo and PBI have no ownership interest in each other; (2) PBI is a third-tier subsidiary corporation of Akzo, being owned by Akzo Pharma, Inc. ("Akzo Pharma"), which in turn is owned by Akzo; (3) PBI and Akzo have no officers and directors in common; (4) Akzo is not authorized to conduct business in Maryland or anywhere else in the United States; (5) Akzo is not actually present in Maryland; and (6) the corporate functions of Akzo and PBI are rigidly separated. Id. at 1-15 (oral ruling). Based upon these findings, the court reasoned that the Maryland long-arm statute, Md.Cts. & Jud.Proc.Code Ann. Sec. 6-103(b) (1989 & Supp.1992), which Mylan had asserted as supporting jurisdiction, did not authorize it to exercise personal jurisdiction over Akzo. Id. at 15. The court therefore dismissed Akzo from the action, and Mylan took this appeal.

Mylan presents two questions for decision: (1) whether the district court erred as a matter of law in determining that it could not assert personal jurisdiction over Akzo; and (2) whether the district court abused its discretion in denying Mylan's motion to take discovery on the personal jurisdiction issue. We consider these issues in turn.


When a court's personal jurisdiction is properly challenged by motion under Federal Rule of Civil Procedure 12(b)(2), the jurisdictional question thereby raised is one for the judge, with the burden on the plaintiff ultimately to prove grounds for jurisdiction by a preponderance of the evidence. Combs v. Bakker, 886 F.2d 673, 676 (4th Cir.1989); Dowless v. Warren-Rupp Houdailles, Inc., 800 F.2d 1305, 1307 (4th Cir.1986); 2A James W. Moore, Moore's Federal Practice p 12.07[2.-2] (1985 & Supp.1992-93). Yet when, as here, the district court decides a pretrial personal jurisdiction dismissal motion without an evidentiary hearing, the plaintiff need prove only a prima facie case of personal jurisdiction. Combs, 886 F.2d at 676. In deciding whether the plaintiff has proved a prima facie case of personal jurisdiction, the district court must draw all reasonable inferences arising from the proof, and resolve all factual disputes, in the plaintiff's favor. Id.; Wolf v. Richmond County Hosp. Auth., 745 F.2d 904, 908 (4th Cir.1984), cert. denied, 474 U.S. 826, 106 S.Ct. 83, 88 L.Ed.2d 68 (1985). To the extent that the district court's conclusions concerning whether the plaintiff has proved personal jurisdiction rest upon legal precepts, those conclusions are reviewed on appeal de novo. Combs, 886 F.2d at 676. To the extent the district court's conclusions are based on findings of fact, however, such findings should not be disturbed by an appellate tribunal unless clearly erroneous. Id.; Bowman v. Curt G. Joa, Inc., 361 F.2d 706, 717 (4th Cir.1966).

To prove that the district court may assert personal jurisdiction over Akzo, Mylan must show (1) that a statute or rule authorizes service of process on Akzo in the District of Maryland; 2 and (2) that service on Akzo comports with the requirements of the Due Process Clause of the Fourteenth Amendment. 3 See Omni Capital Int'l Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 102-03, 108 S.Ct. 404, 408-09, 98 L.Ed.2d 415 (1987); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291, 100 S.Ct. 559, 564, 62 L.Ed.2d 490 (1980); International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). Mylan contends that the Maryland long-arm statute, Md.Cts. & Jud.Proc.Code Ann. Sec. 6-103(b) (1989 & Supp.1992), 4 authorizes the district court to assert personal jurisdiction over Akzo. The purpose of the Maryland long-arm statute is to give the courts of the state personal jurisdiction over all out-of-state defendants who purposefully avail themselves of the privilege of conducting activities in Maryland, thus invoking the benefits and protections of Maryland law. See Novack v. National Hot Rod Ass'n, 247 Md. 350, 353-57, 231 A.2d 22, 24-26 (1967). The statute permits the Maryland courts to assert personal jurisdiction over (1) persons who directly conduct activities in Maryland; and (2) persons who conduct activities in Maryland through an agent.

In the proof it adduced below, Mylan made no attempt to show that Akzo possessed direct contacts with Maryland at the time this action commenced. Under these circumstances, service of process on Akzo can be proper only if Akzo's relationship with its third-tier subsidiary and co-defendant PBI is that of principal to agent. Mylan contends that such a relationship exists, because (1) as PBI's parent corporation, Akzo controlled significant business activities of PBI in Maryland, warranting attribution of those activities to Akzo; (2) Akzo indirectly owns all the outstanding common stock of PBI, through its direct stock ownership of Akzo Pharma; and (3) certain allegedly criminal acts committed by PBI employees were performed with the intent to benefit Akzo, rendering Akzo liable for those acts in Maryland.

The Maryland Court of Appeals, whose authoritative interpretations of the Maryland long-arm statute bind us, 5 see Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938), has adopted the so-called "agency" test in deciding whether to pierce the veil separating parent corporations from their subsidiaries for jurisdictional purposes. See Vitro Elec. v. Milgray Elec., Inc., 255 Md. 498, 501-03, 258 A.2d 749, 751-52 (1969). Originally advanced by Justice Brandeis in Cannon Manufacturing Co. v. Cudahy Packing Co., 267 U.S. 333, 335-38, 45 S.Ct. 250, 251-52, 69 L.Ed. 634 (1925), this test allows a court to attribute the actions of a subsidiary corporation to the foreign parent corporation only if the parent exerts considerable control over the activities of the subsidiary. Central to the exertion of such control, and thus to whether the corporate veil may be pierced, is whether significant decisions of the subsidiary must be approved by the parent. See Finance Co. of Am. v....

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