United States of America et al v. Organon USA Inc et al
Filing
168
Judge Rya W. Zobel: ORDER entered. MEMORANDUM OF DECISION entered.(Urso, Lisa)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CIVIL ACTION NO. 07-12153-RWZ
UNITED STATES OF AMERICA ex rel.
JAMES BANIGNAN AND RICHARD TEMPLIN, et al.
v.
ORGANON USA INC., et al.
MEMORANDUM OF DECISION
April 9, 2012
ZOBEL, D.J.
Relators, James Banigan and Richard Templin, bring this qui tam action on
behalf of the United States of America, twenty-seven states,1 the District of Columbia,
and the City of Chicago under the False Claims Act, 31 U.S.C. §§ 3729-33, against
defendants Akzo Nobel N.V. (“Akzo Nobel”), Organon Biosciences N.V., Organon USA,
Inc., Organon Pharmaceuticals USA, Inc., Organon International, Inc. (collectively
“Organon” or “Organon defendants”),2 Schering-Plough, Merck & Co., Inc., Omnicare,
Inc., and PharMerica, Inc. Relators claim that from 1999-2006, Organon, a
pharmaceutical company, engaged in a scheme to offer unlawful remuneration to longterm care pharmacies – Omnicare and PharMerica, among others – in exchange for the
1
California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana,
Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New
Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Virginia,
and Wisconsin.
2
I do not use the term “Organon” to include defendant Akzo Nobel.
pharmacies prescribing its antidepressants, Remeron Tablet and Remeron SolTab
(collectively “Remeron”), to patients. This scheme allegedly resulted in the pharmacies
filing hundreds of millions of dollars in fraudulent claims for Medicaid prescription drug
reimbursements.
Akzo Nobel moves to dismiss all claims against it for lack of personal jurisdiction
and improper service of process under Fed. R. Civ. P. 12(b)(2) and 12(b)(5),
respectively. (Docket # 116.) It also moves to dismiss under Fed. R. Civ. P. 12(b)(6),
9(b), and 12(b)(1) (Docket # 126), joining the other defendants who likewise move on
these grounds (Docket ## 123, 125, 128). Per the court’s order of March 30, 2012
(Docket # 167), and for the reasons explained below, Akzo Nobel’s motion to dismiss
for lack of personal jurisdiction is allowed. The remaining defendants’ motions to
dismiss will be addressed in a subsequent order.
I. Background
A. Akzo Nobel
According to the Relators’ Third Amended Complaint (Docket # 105), Akzo
Nobel is a Netherlands corporation “specializing in chemical coatings.” It engages in
activities including “developing, marketing, and selling pharmaceutical products
throughout the U.S. ” through its “corporate center, business units, subsidiaries,
officers, directors, employees, and agents.” It has business units in Pharmaceutical,
Coatings, and Chemicals, which include companies operating in the U.S. Its corporate
center coordinates tasks in areas like “finance, human resources, technology, legal
matters, and intellectual property,” and its employees “often rotated to and held
2
positions at Organon USA, Inc.”
Organon USA, Organon Pharmaceuticals USA, Organon International, and
Organon Biosciences N.V. were, at all relevant times, wholly-owned subsidiaries and
pharmaceutical business units of Akzo Nobel. Organon USA is a New Jersey
pharmaceutical company that manufactures and sells Remeron. Akzo Nobel sold
Organon to Schering-Plough in November 2007. Merck & Co. and Schering-Plough
merged in November 2009, with Merck continuing as the surviving public corporation.
Relators allege that Organon USA, Organon International, and Organon
Pharmaceuticals USA were “mere instrumentalities and/or agents” of Akzo Nobel.
They claim that Akzo Nobel exerted control over Organon by approving pharmaceutical
budgets and marketing plans; “frequently interact[ing] and correspond[ing] with
Organon Pharmaceuticals’ executives”; controlling the salaries of Organon employees,
for example by requiring Organon USA’s senior management to obtain approval for any
raises given to employees that exceeded ten percent; and paying the salaries of
Organon USA’s in-house legal counsel. They also note that Organon’s CEO sat on
Akzo Nobel’s board and reported directly to its CEO, and that Akzo Nobel’s board
member responsible for the Pharma unit required Organon Pharmaceuticals USA to
send him regular reports on market trends and sales, including reports on Remeron.
In their opposition to Akzo Nobel’s motion to dismiss (Docket # 165 and
exhibits), Relators proffer several additional jurisdictional facts: (1) In October 2001,
Akzo Nobel’s Chief Financial Officer spoke to American investors in New York and
described the Pharma Group, which included Organon, as the “driver of Akzo Nobel’s
3
financial performance.” The company issued a contemporaneous press release that
was distributed to American media and which noted that the U.S. accounted for a large
portion of the Pharma Group’s sales. (2) As of the time this action arose, until 2007, the
company was listed on the NASDAQ stock exchange. (3) Akzo Nobel owns over 800
U.S. patents, including the patent for Remeron Tablet and Remeron SolTab, and has
brought two patent infringement suits in U.S. courts. (4) It also held a U.S.-registered
trademark that appears on Organon’s correspondence with the U.S. Food and Drug
Administration (“FDA”) and Organon documents attached to the complaint, including
rebate checks that Organon sent to Omnicare.3
For its part, Akzo Nobel proffers two declarations from its Corporate Secretary,
Jacqueline Muller. See Docket # 117 Ex. 1 (Muller Decl.); Docket # 139 Ex. 1 (Muller
Supp. Decl.). Among other things, Muller states that Akzo Nobel is not licensed or
registered to do business anywhere in the U.S.; has no plants, offices, property, bank
accounts, telephone numbers or listings, post office boxes, or employees in the U.S.;
and has never manufactured, marketed, advertised, distributed, labeled or otherwise
sold pharmaceutical products – including Remeron – in the U.S. Muller Decl. ¶¶ 2-3.
She avers that Organon Biosciences N.V., Organon USA, Organon Pharmaceuticals
USA, and Organon International were separately incorporated subsidiaries of Akzo
Nobel, id. at ¶ 4, and that these subsidiaries were “at all times responsible for the
development, manufacturing, marketing and sales of Remeron.” Muller Supp. Decl. ¶
3
Each document Relators offer bearing the Akzo Nobel mark or logo also contains the Organon
logo or is otherwise identified as originating from Organon. Docket # 1 Exs. 12, 15, 31-34, 37, 63, 95;
Docket # 165 Ex. K.
4
7. She further states that between 1999-2006, Akzo Nobel did not have any
employees, facilities, or offices in the U.S., but that it did own separately incorporated
subsidiaries in the U.S., many of which had “Akzo Nobel” as part of their corporate
name (e.g., Akzo Nobel, Inc., Akzo Nobel Chemicals, Inc., Akzo Nobel Surface
Chemistry LLC). Id. ¶ 2, 4-6.
Since it sold Organon to Schering-Plough in 2007, Akzo Nobel was divested of
all interests in Organon. All of its employees “with knowledge of the facts and
documents relevant to this litigation were transferred to Schering-Plough.” Muller Decl.
¶ 5. Relators have not controverted any of Muller’s aforementioned statements.4
B. Relators’ Claims
The Third Amended Complaint contains five counts under the federal False
Claims Act.5 Relators allege that Organon offered long-term care pharmacies unlawful
kickbacks, often disguised as market-share discounts and rebates, and other
remuneration to entice the pharmacies to convert as many of their long-term care
patients as possible from other competitor antidepressants to Remeron. They describe
4
Although Relators claim that Akzo Nobel has (or had at the relevant time) research facilities
and offices in the U.S., their proffered supporting documents show that these facilities and offices were,
in fact, owned and operated by subsidiaries of Akzo Nobel. Docket # 165 Ex. D-I; Muller Supp. Decl. ¶¶
3-6.
Relators also make much of the fact that Akzo Nobel’s U.S.-registered trademark appeared on
Organon’s correspondence with the FDA discussing Remeron, and that one letter references Remeron
production records written “in Dutch.” Docket # 165 Ex. K. They cite this fact in an effort to negate Akzo
Nobel’s – a Dutch company – claim that it has never manufactured or distributed Remeron. But the fact
is easily explained by Muller’s uncontroverted statement that Organon Biosciences N.V. – one of the
companies responsible for manufacturing, marketing, and selling Remeron – owned, leased, or operated
facilities in the Netherlands. Muller Supp. Decl. ¶¶ 7-8.
5
Counts VI-XXXIV allege violations of state false claims statutes, and Count XXXV seeks
common fund relief. None of these counts is relevant to the court’s disposition of the instant motion.
5
this process of conversion as “therapeutic interchange.” They also allege that Organon
promoted off-label uses for Remeron Tablet and Remeron SolTab in order to maximize
the success of the therapeutic interchange program. Relators claim that the
pharmacies submitted claims for reimbursement to state Medicaid programs for
Remeron prescriptions that were tainted by these alleged kickbacks and off-label
promotion, in violation of the False Claims Act, 31 U.S.C. § 3729(a).
They further allege that Organon reduced its rebate liability to state Medicaid
programs by: (1) concealing its true “best price” for Remeron Tablet and Remeron
SolTab; (2) lowering its average manufacturer price (“AMP”) for Remeron by including
in its AMP calculation the discounts and rebates it gave to long-term care pharmacies;
(3) avoiding disclosure of the true “best price” for Remeron by mischaracterizing
transactions as nominal or entering into discount arrangements; and (4) selling
Remeron at a discounted price to entities not qualified to receive the discounts.6
Finally, they allege that, through these actions, Organon, Omnicare, and PharMerica
conspired to defraud the U.S. by getting false or fraudulent claims allowed or paid, and
that Organon and Schering-Plough retaliated against them in response to their
investigation and initiation of their claims.
II. Analysis
On a motion to dismiss for lack of personal jurisdiction where no evidentiary
6
42 U.S.C. § 256b establishes “covered entities” which are entitled to received statutorily
defined discounts on outpatient drugs. Pharmaceutical manufacturers are required to participate in this
so-called “340B program” as a condition of having drug charges reimbursed by Medicaid. County of
Santa Clara v. Astra USA, Inc., No. C 05-03740, 2006 U.S. Dist. LEXIS 57176 (N.D. Cal. July 28, 2006).
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hearing has been held, it is a plaintiff’s burden to make a prima facie showing that the
court has personal jurisdiction over a defendant. United Elec. Radio & Mach. Workers
of Am. v. 163 Pleasant St. Corp., 987 F.2d 39, 44 (1st Cir. 1993) [hereinafter, “Pleasant
Street II”]. To do so, plaintiff must “go beyond the pleadings and make affirmative
proof.” United States v. Swiss Am. Bank, 274 F.3d 610, 619 (1st Cir. 2001) (quoting
Pleasant Street II, 987 F.2d at 44). The court will accept as true “properly supported
proffers of evidence by a plaintiff,” id., and will also consider uncontradicted facts
offered by the defendant. Mass. Sch. of Law at Andover, Inc. v. Amer. Bar Ass’n, 142
F.3d 26, 34 (1st Cir. 1998). The court is not required to “credit conclusory allegations
or draw farfetched inferences.” Id.
For a court to exercise personal jurisdiction over a defendant, service of process
must be grounded in a federal statute or rule and the exercise of jurisdiction must
comport with due process. United Elec., Radio & Mach. Workers of Am. v. 163 Pleasant
St. Corp., 960 F.2d 1080, 1085-86 (1st Cir. 1992) [hereinafter “Pleasant Street I”];
Swiss Am. Bank, 274 F.3d at 618. Service is authorized here because the False
Claims Act provides for worldwide service of process. 31 U.S.C. § 3732(a).
To comport with due process, a defendant must have sufficient “minimum
contacts” with the forum. Pleasant Street I, 960 F.2d at 1088. In a federal question
case, like this, where the due process clause of the Fifth Amendment dictates the
constitutional limits of the court’s personal jurisdiction, “a plaintiff need only show that
the defendant has adequate contacts with the United States as a whole, rather than
with a particular state.” Swiss Am Bank, 274 F.3d at 618.
7
Personal jurisdiction over a defendant may be either “specific” or “general.” Id.
“Specific jurisdiction exists when there is a demonstrable nexus between a plaintiff's
claims and a defendant's forum-based activities.” Id. “General jurisdiction exists when
the litigation is not directly founded on the defendant's forum-based contacts, but the
defendant has nevertheless engaged in continuous and systematic activity, unrelated
to the suit, in the forum . . . .” Id. Even in the absence of general or specific
jurisdiction, a court may still assert personal jurisdiction over a parent company if the
plaintiff can establish that it would be appropriate to pierce the corporate veil. Pleasant
Street I, 960 F.2d at 1093.
Relators argue that they have met the tests for both specific and general
jurisdiction over Akzo Nobel. In the alternative, they contend that corporate veilpiercing is appropriate. They request limited jurisdictional discovery in the event the
court finds that it lacks personal jurisdiction over Akzo Nobel.
A. Specific Jurisdiction
Three criteria must be satisfied for the court to assert specific jurisdiction over a
defendant: (1) the plaintiff’s claim must “directly relate[ ] to or arise[ ] out of the
defendant’s contacts with the forum;” (2) the defendant’s contacts must constitute
“purposeful availment of the benefits and protections afforded by the forum’s laws;” and
(3) the exercise of jurisdiction must be reasonable in light of “a variety of pertinent
factors that touch upon the fundamental fairness of an exercise of jurisdiction” (i.e. the
8
gestalt factors).7 Swiss Am. Bank, 274 F.3d at 620-21 (quotations omitted).
The relatedness requirement focuses on the “nexus between defendant’s
contacts and the plaintiff’s cause of action.” Id. (quoting Ticketmaster-N.Y., Inc. v.
Alioto, 26 F.3d 201, 206 (1st Cir. 1994)). The First Circuit has explained that
the relatedness requirement is not an open door; it is closely read, and it
requires a showing of a material connection. . . . This court steadfastly
rejects the exercise of personal jurisdiction whenever the connection
between the cause of action and the defendant’s forum-state contacts seems
attenuated and indirect. Instead, the defendant’s in-state conduct must form
an important or at least material, element of proof in the plaintiff’s case. A
broad “but-for” argument is generally insufficient. Because “but for” events
can be very remote, . . . due process demands something like a “proximate
cause” nexus.
Negron-Torres v. Verizon Comm’ns, Inc., 478 F.3d 19, 25 (1st Cir. 2007) (quotations,
alterations, and citations omitted).
None of the contacts that Relators muster to satisfy the relatedness requirement
do so. Akzo Nobel’s approval of Organon’s pharmaceutical budgets and marketing
plans, and its alleged requirement that Organon send it regular updates of
pharmaceutical market trends and sales, relate to the relationship between Akzo Nobel
and Organon and do not establish contacts between Akzo Nobel and the U.S. See
Swiss Am Bank, 274 F.3d at 621 (defendant’s business relationship and/or contract
with U.S. resident (who was predecessor-in-interest to U.S.) was “not itself a contact
with the U.S. as a forum”) (citing Sawtelle v. Farrell, 70 F.3d 1381, 1389 (1st Cir. 1995)
7
The gestalt factors include: “(1) the defendant’s burden of appearing, (2) the forum state’s
interest in adjudicating the dispute, (3) the plaintiff’s interest in obtaining convenient and effective relief,
(4) the judicial system’s interest in obtaining the most effective resolution of the controversy, and (5) the
common interests of all sovereigns in promoting substantive social policies.” Pleasant Street II, 987 F.2d
at 46 (quotation marks and citations omitted).
9
(emphasis in original); Sawtelle, 70 F.3d at 1389 (to meet relatedness requirement,
cause of action must arise out of “specific contacts between the defendant and the
forum” and not out of general relationship between parties). Furthermore, Akzo Nobel’s
approval of Organon’s business plans does not establish that it was involved in
creating the plans or implementing them, much less that it caused the specific harm
alleged here. Cf. Alvarado-Morales v. Digital Equip. Co., 843 F.2d 613, 617 (1st Cir.
1988) (defendants’ approval of subsidiary’s “resignation plan” at issue was insufficient
to show the “requisite specific involvement in creating and implementing it” to satisfy
Puerto Rican long-arm statute’s requirement that defendant consummated some act or
transaction in Puerto Rico); In re Lupron Mktg. and Sales Practices Litig., 245
F.Supp.2d 280, 292-93 (D. Mass. 2003) (parent’s authority to approve subsidiary’s
marketing strategies did not establish requisite degree of control over subsidiary to
subject it to personal jurisdiction under corporate alter ego or agency theory) (citing
cases). The use of Akzo Nobel’s trademark or logo by its subsidiaries on their
documents is likewise insufficient to demonstrate that it caused those documents to be
made or otherwise controlled their content.
Relators contend that Akzo Nobel brought two patent infringement suits “as part
of a larger plan” to prevent Remeron Tablet’s patent expiration from affecting
Remeron’s sales by converting long-term care patients’ prescriptions from Remeron
Tablet to the patent-protected Remeron SolTab. See also Docket # 1 ¶¶ 4, 55-56. The
complaint simply alleges no facts to suggest that Akzo Nobel’s patent infringement suits
were part of any such “plan” let alone the conversion scheme Relators describe. Akzo
10
Nobel’s enforcement of its patent rights has no bearing on whether a long-term care
pharmacy would convert a patient’s prescription from Remeron Tablet to Remeron
SolTab.
Relators offer no contacts to establish the requisite nexus between Akzo Nobel
and their causes of action. The court thus lacks specific jurisdiction over Akzo Nobel.
B. General Jurisdiction
A court exercising general jurisdiction over a defendant must ensure that two
criteria are met: (1) “there must be continuous and systematic general business
contacts between the foreign defendant and the forum”; (2) “the plaintiff must show that
the exercise of jurisdiction would be reasonable.” Swiss Am. Bank, 274 F.3d at 619
(quotations and citations omitted). “[T]he standard for evaluating whether these
contacts satisfy the constitutional general jurisdiction test is considerably more
stringent than that applied to specific jurisdiction questions.” Id. (quoting Noonan v.
Winston Co., 135 F.3d 85, 93 (1st Cir. 1998)). “In addition, courts must exercise even
greater care before exercising personal jurisdiction over foreign nationals.” Noonan,
135 F.3d at 93 (citing Asahi Metal Indust. Co., Ltd. v. Sup. Ct. of Cal., Solano Cnty.,
480 U.S. 102, 115 (1987)).
The “quality and quantity of contacts between the potential defendant and the
forum” are central to the court’s general jurisdiction inquiry. Id. (quoting Philips Exeter
Acad. v. Howard Phillips Fund, Inc., 196 F.3d 284, 288 (1st Cir. 1999)). The inquiry
itself is “highly idiosyncratic” and “fact-specific,” but “it may be guided by the types of
contacts deemed sufficiently continuous and systematic in other cases.” Cossaboon v.
11
Maine Medical Center, 600 F.3d 25, 33 (1st Cir. 2010) (quoting Noonan, 135 F.3d at
93).
Relators argue that the court may exercise general jurisdiction because the U.S.
“constituted a large portion” of Akzo Nobel’s pharmaceutical business; the company
was listed on the NASDAQ stock exchange; it owns U.S. patents and has filed two
patent infringement suits in U.S. courts; and it holds a U.S. registered trademark that
was used by its subsidiaries on correspondence with the FDA.
None of these contacts alone is sufficiently “continuous and systematic” to justify
the exercise of general jurisdiction over Akzo Nobel. That its Pharma Group
subsidiaries (including Organon) did a brisk business in the U.S. does not establish any
contacts with the U.S. by Akzo Nobel itself. See Escude Cruz v. Ortho Pharma. Corp.,
619 F.2d 902, 905 (1st Cir. 1980) (“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.”) (citing Canon Mfg. Co. v. Cudahy Packing
Co., 267 U.S. 333 (1925)). “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.” Id.
Filing two lawsuits in the U.S. is not “continuous and systematic” activity. See
e.g., Merlino v. Harrah’s Entm’t, Inc., No. 05 CV 6660, 2006 WL 401847, at *3 (E.D. Pa.
Feb. 17, 2006) (“filing even nineteen lawsuits, without more, cannot constitute
continuous and systematic activity so as to establish general jurisdiction”); In re
Genetically Modified Rice Litigation, 576 F.Supp.2d 1063, 1070 (E.D. Mo. 2008)
12
(contract with forum-based corporation and filing of two lawsuits in the forum were not
“systematic”). Neither is holding U.S. patents or listing on the U.S. stock exchange. See
e.g., In re Chocolate Confectionary Antitrust Litigation, 602 F.Supp.2d 538, 566-67
(M.D. Pa. 2009) (following contacts – alone and in the aggregate – were insufficient for
general jurisdiction: issuance of investment devices that allowed investors to trade
foreign defendant’s shares on U.S. exchanges; ownership of U.S. patents; maintenance
of global website; participation in U.S. merger transactions; submission to jurisdiction of
U.S. courts; control over U.S. subsidiaries, and execution of licensing agreement).
Relators cite no relevant authority to support their claim that owning a trademark
or logo is a “continuous and systematic contact” for general jurisdiction purposes.8 To
find otherwise on these facts would be to subject a parent company to potential liability
whenever one of its subsidiaries uses the parent’s mark or logo. Cf. NBA Properties,
Inc. v. Gold, 895 F.2d 30, 33 (1st Cir. 1990) (franchisors permitting franchisees to use
their company name in connection with stores that sold unauthorized NBA merchandise
did not violate court decree prohibiting franchisors from “enabling” the forbidden
conduct; such a holding would “impose[ ] strict liability upon the [f]ranchisors for the
acts of their franchisees”).
Finally, the aforementioned contacts in the aggregate are less compelling than
8
The cases on which they rely, Clune v. Alimak AB, 233 F.3d 538, 540, 543-44 (8th Cir. 2000)
and Vandelune v. 4B Elevator Components Unlimited, 148 F.3d 943, 948 (8th Cir. 1998), are
distinguishable. Both were product liability cases where the court found that exercise of jurisdiction over
the defendant was proper because, among other things, a foreign defendant had put its logo on the
offending product and deliberately set up a distribution system that made such product available for
purchase in the forum state. Moreover, these contacts were only used to establish the “purposeful
availment” prong of the constitutional due process analysis, not to establish the continuous and
systematic contacts required for the court to assert general jurisdiction.
13
contacts found to be insufficient for general jurisdiction in other cases. See, e.g.,
Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416 (1984) (no
“continuous and systematic business contacts” where defendant sent its CEO to forum
to negotiate a contract; accepted into its bank accounts checks drawn on a forumbased bank; spent “substantial sums” to purchase helicopters, equipment, and training
services from a forum-based company; and sent its employees to the forum for
training); Cossaboon, 600 F.3d at 39 (defendant hospital advertised to forum residents,
operated a website accessible in forum, registered to do business in forum and
employed one person to work there, participated in a system that facilitated patient
transfers, entered into an agreement with a forum-based medical school, and treated a
substantial number of forum residents at its facility); Swiss Am. Bank, 274 F.3d at 61920 (defendant bank placed twelve advertisements in an American magazine over two
years; subscribed to an American credit card; entered into a licensing agreement with
American credit card company; contracted with American company for the provision of
ATM support services; was an appellant in Florida lawsuit; entered into a joint venture
with an Ohio bank; loaned $350,000 to a Colorado company; had banking relationships
and accounts with four New York banks and a business relationship with a
Massachusetts resident); Noonan, 135 F.3d at 93 (defendant sent its employee to the
forum to photograph the plaintiff; regularly solicited business – via phone and by
visiting the forum – from a forum-based company; and received approximately
$585,000 worth of orders from that same company); Donatelli v. Nat’l Hockey League,
708 F.Supp. 31, 35 (D.R.I. 1989) (reciting facts), reversed 893 F.2d 459 (1st Cir. 1990)
14
(for ten years defendant had provided league officials at exhibition hockey games,
conducted scouting activity, provided television broadcasts, and sold products bearing
the NHL logo); Glater v. Eli Lilly & Co., 744 F.2d 213, 215-17 (1st Cir. 1984) (defendant
employed eight sales representatives in forum, conducted business in the state, and
advertised in trade journals that circulated there).
C. Piercing the Corporate Veil Inquiry
While the general jurisdiction inquiry is more stringent than that for specific
jurisdiction, Noonan,135 F.3d at 93, “[t]he bar is set even higher in a case like this one,
in which plaintiffs seek to disregard the corporate form.” Negron-Torres, 478 F.3d at 27
(quotations omitted). “It is a general principle of corporate law deeply ‘ingrained in our
economic and legal systems’ that a parent corporation . . . is not liable for the acts of its
subsidiaries.” U.S. v. Bestfoods, 524 U.S. 51, 61 (1998). However, the corporate veil
may be pierced and the parent held liable for the subsidiary’s conduct “where the
corporate form would otherwise be misused to accomplish certain wrongful purposes,
most notably fraud, on the [parent’s] behalf.” Id. at 62.
Under the federal veil-piercing standard, a court must consider: “(1) whether the
parent and subsidiary ignored the independence of their separate operations, (2)
whether some fraudulent intent existed on the principals’ part, and (3) whether a
substantial injustice would be visited on the proponents of veil piercing should the court
validate the corporate shield.” Pleasant Street I, 960 F.2d at 1093.
To determine the independence of a parent and its subsidiary, the court looks to
the following factors:
15
(1) whether a corporation is operated as a separate entity; (2) commingling
of funds and other assets; (3) failure to maintain adequate records or
minutes; (4) the nature of the corporation’s ownership and control; (5)
absence of corporate assets and undercapitalization; (6) use of a
corporation as a mere shell, instrumentality or conduit of an individual or
another corporation; (7) disregard of legal formalities and the failure to
maintain an arms-length relationship among related entities; and (8)
diversion of the corporation’s funds or assets to noncorporate uses.
InterGen N.V. v. Grina, 344 F.3d 134, 149 (1st Cir. 2003). A plaintiff must establish
more than just the “normal badges of ownership, ‘such as monitoring of the subsidiary’s
performance, supervision of the subsidiary’s finance and capital budget decisions, and
articulation of general policies and procedures,’” In re Lupron, 245 F.Supp. 2d at 291
(quoting Bestfoods, 524 U.S. at 72), or the sharing of directors, officers and employees.
Id. (citing Pleasant Street I, 960 F.2d at 1083-84, 1091).
Relators claim that Akzo Nobel and Organon lacked an arms-length relationship
because the functions of Akzo Nobel’s corporate center and business units overlapped,
Akzo Nobel and Organon shared common employees, and Organon’s CEO reported to
Akzo Nobel’s CEO and sat on Akzo Nobel’s board. They also note that Akzo Nobel
had “final say” over Organon’s pharmaceutical budgets and marketing plans, required
Organon to send regular reports on its market trends and sales, paid the salaries of
Organon USA’s in-house counsel, and required Organon USA to seek approval before
it could give its employees a raise in excess of ten percent. None of these allegations
demonstrates more than the “normal badges” of corporate ownership. Since Relators
fail to establish that Akzo Nobel and Organon had anything other than an arms-length
parent-subsidiary relationship, much less that Akzo Nobel was attempting to shirk its
16
legal obligations,9 veil-piercing is unwarranted. Pleasant Street I, 960 F.2d at 1093 (“It
is only when the quest to limit corporate responsibility evolves into a specific effort to
evade a parent corporation’s legal obligations that the possibility of veil piercing begins
to loom.”).
D. Jurisdictional Discovery
Although a plaintiff who makes a “colorable claim” for the existence of personal
jurisdiction over a defendant may be entitled to “a modicum of jurisdictional discovery,”
“that entitlement is not absolute.” Swiss Am. Bank, 274 F.3d at 625 (citations and
quotation marks omitted). For the aforementioned reasons, Relators fail to make a
colorable claim for jurisdiction. Even if they had, given the court’s “broad discretion to
decide whether discovery is required,” id. at 626, and Relators’ failure to meet their
“obligation to` present facts to the court which show why jurisdiction would be found if
discovery were permitted,” id. (citations omitted), their discovery request is denied.
III. Conclusion
Per the court’s Order of March 30, 2012 (Docket # 167), Defendant Akzo Nobel
N.V.’s motion to dismiss for lack of personal jurisdiction (Docket # 116) is ALLOWED,
and its supplemental motion to dismiss (Docket # 126) is DENIED AS MOOT.
9
The court does not credit Relators’ unsupported, conclusory allegations that the Organon
Defendants “were mere instrumentalities and/or agents of Akzo Nobel” or that Organon was a mere
“shell” for Akzo Nobel because the latter “used Organon USA” as a “conduit to gain FDA approval for
Remeron.”
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April 9, 2012
DATE
/s/Rya W. Zobel
RYA W. ZOBEL
UNITED STATES DISTRICT JUDGE
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