For jurisdictional purposes, when should a foreign parent company be “held for the acts” of a resident subsidiary acting on its behalf? On March 4, 2013, Los Angeles Superior Court Judge Lee S. Edmon analyzed this issue following a contentious motion to quash by a foreign corporation asserting lack of personal jurisdiction in a toxic tort personal injury action.
In that case, Rosas v. Flavorchem Corp., LASC Case No. BC400974, the nonresident defendant (a German corporation) manufactured and sold chemical products worldwide. Its wholly owned subsidiary was incorporated in Delaware, with its headquarters in New Jersey. The subsidiary produced and sold various chemical products in the United States (and in California, in particular), including chemical products manufactured by its parent company.
Though the parent and subsidiary maintained separate corporate structures, the two corporations shared a number of officers and directors. Additionally, from time to time, the parent company encouraged additional sales, advised the subsidiary of a need to change price based on supply, helped develop material safety data sheets, and made the ultimate decision to stop manufacturing and distributing the chemical product at issue, diacetyl.
The court began its analysis of general jurisdiction by reiterating the “firm proposition that neither ownership nor control of a subsidiary corporation, without more, subjects the parent to the jurisdiction of the state where the subsidiary does business.” Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523, 540 (2000) (italics added). But, what constitutes “more”? The answer to this question, the court acknowledged, is not entirely clear.
To begin, “the degree of direction and oversight normal and expected from the status of ownership” is insufficient. Sonora at 540. Examples of “normal” parent-subsidiary relationships include “interlocking directors and officers, consolidated reporting and shared professional services,” as well as “a close financial relationship between the parent and subsidiary and a certain degree of direction and management.” Id. at 540 – 541. One court found that no agency relationship existed where members of the parent’s executive committee “visited with their subsidiary’s . . . major customers, accompanied by sales executives from the subsidiary approximately once per year per customer” and where some “employees [of the parent] attended sales and product development meetings at [the subsidiary] to obtain information regarding products that were coming to market.” Dorel Industries, Inc. v. Superior Court, 134 Cal.App.4th 1267, 1276 (2005). Essentially, “the parent must be shown to have moved beyond the establishment of a general policy and direction for the subsidiary and in effect taken over performance of the subsidiary’s day-to-day operations in carrying out that policy.” Sonora at 452.
In applying this standard, Judge Edmon concluded that the evidence at issue revealed nothing more than a “normal parent/subsidiary corporation relationship,” insufficient to establish general personal jurisdiction. The sharing of corporate officers, the encouragement of sales, the development of material safety data sheets, and the decision to stop manufacturing and distributing diacetyl were deemed to be “normal communications between a manufacturer and distributor.” And, beyond the lack of evidence of day-to-day control over business operations, the court also noted that the subsidiary did not exist solely for the benefit of, or to further the business of, the parent company.
In short, to subject a parent company to personal jurisdiction in California by way of agency, “[t]he nature of the control exercised by the parent over the subsidiary . . . must be over and above that to be expected as an incident of the parent’s ownership of the subsidiary and must reflect the parent’s purposeful disregard of the subsidiary’s independent existence.” Rollins Burdick Hunter of So. Cal., Inc. v. Alexander & Alexander Services, Inc., 206 Cal.App.3d 1, 9 (1988).