Commercial Division Blog
Court Declines to Exercise Personal Jurisdiction Over Foreign Entities Under Mere Department Doctrine
On April 24, 2015, Justice Kornreich of the New York County Commercial Division issued a decision in Cargill Soluciones Empresariales, S.A., de C.V, SOFOM, ENR v. WPHG Mexico Operating, L.L.C., 2015 NY Slip Op. 30713(U), dismissing parties for lack of personal jurisdiction.
In Cargill Soluciones Empresariales, the plaintiffs brought an action relating to the management of a foreign resort. Some of the foreign defendants moved to dismiss for lack of personal jurisdiction. The court granted the motion, explaining:
Exercising personal jurisdiction over a foreign affiliate of a defendant subject to New York's jurisdiction on the basis of alter ego liability is known as the "mere department" doctrine. As the Second Department recently explained:
In its limited jurisprudence concerning the mere department doctrine, the primary focus of the Court of Appeals has been on the degree of control exercised by the domestic corporation over the foreign corporation. Such control may be manifested in numerous ways and, thus, the method by which such control may be demonstrated will necessarily depend on the attendant facts. Although the Court of Appeals has noted that it has never held a foreign corporation present on the basis of control, unless there was in existence at least a parent-subsidiary relationship, it has nevertheless indicated that this factor is not dispositive. The control over a subsidiary's activities must be so complete that the subsidiary is, in fact, merely a department of the parent. It is only when the two corporations are in fact, if not in name one and the same corporation, that there is realistically no basis for distinguishing between them for jurisdictional purposes.
The relevant factors for establishing mere department jurisdiction are the veil piercing factors minus the fraud prong. As with veil piercing, conclusory allegations in the complaint are insufficient.
The [amended complaint] does not adequately plead facts sufficient to exercise jurisdiction over the Affiliate Defendants on an alter ego theory. The cases cited above, among a plethora of others, make clear that out-of-state holding companies and special purpose investment vehicles are not automatically subject to this court's jurisdiction merely because money, allegedly wrongfully taken by a defendant subject to jurisdiction in New York, was transferred to that defendant's affiliates. Whatever the reasons behind the Affiliate Defendants' corporate structure, the mere fact that they arc all based in the same location in Atlanta is simply not a basis to subject them to jurisdiction in New York.
(Internal quotations and citations omitted) (emphasis added).