District Court Rejects Personal Jurisdiction Over Japanese Subsidiary Due to Lack of Sufficient Evidence of Control by U.S. Parent Corporation

The World in U.S. Courts: Winter 2014 - Personal Jurisdiction

Gundlach v. IBM Japan, U.S. District Court, Southern District of New York, November 21, 2013

The plaintiff Gundlach alleged personal jurisdiction over Defendant IBM Japan, claiming IBM Japan was a "mere department" of IBM U.S., thus satisfying the test for control and allowing the U.S. corporation's extensive U.S. contacts to be attributed to IBM Japan for purposes of personal jurisdiction. However, the U.S. District Court for the Southern District of New York rejected that argument, holding that IBM U.S. does not exercise sufficient control over IBM Japan to prevent its Japanese subsidiary from being treated as an independent legal entity for purposes of establishing personal jurisdiction. In reaching this conclusion, the court analyzed four factors under New York law: (1) common ownership; (2) financial dependency of the subsidiary on the parent; (3) the degree to which the parent corporation interferes in the selection and assignment of the subsidiary’s executive personnel and fails to observe corporate formalities; and (4) the degree of control over the marketing and operational policies of the subsidiary. Although both parties agreed the first factor was satisfied, the remaining three factors weighed against exercising personal jurisdiction. First, the Plaintiff failed to establish financial dependence when it cited only a series of loans from parent to subsidiary from between 1937 and 1950, which the Court found irrelevant. In contrast, IBM Japan provided affidavits attesting to its financial independence and solvency. Second, IBM Japan and IBM U.S. have completely different management personnel, although Plaintiff alleged that IBM Japan’s management is ultimately responsible to the U.S. Chairman and CEO. Because Plaintiff offered no additional evidence, the Court found this factor also weighed against exercising personal jurisdiction. Finally, Plaintiff failed to provide any evidence of a common marketing or operational policy, while Defendant provided affidavits of independent policy-making which the court accepted.

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