District Court Finds Personal Jurisdiction over one Canadian Corporation on Alter Ego Theory, but no Personal Jurisdiction over Canadian Tortfeasor whose Contacts with the State did not relate to Alleged Negligence

The World in U.S. Courts: Winter 2016 - Personal Jurisdiction | November.03.2016

Hume v. Farr’s Coach Lines, Ltd., U.S. District Court for the Western District of New York, November 3, 2016

Plaintiff Hume, an American citizen, brought suit on behalf of the estate of her deceased father for claims arising out of the crash in New York State between a commercial bus and tractor trailer that caused his death.  Defendant Daimler Buses North America, Ltd. (“Daimler Canada”), a Canadian corporation, was the seller of the bus involved in the crash, and defendant Tarten Equipment Limited was the Canadian shop that allegedly repaired the bus’s transmission negligently in Canada prior to the crash.  Both defendants moved to dismiss for lack of personal jurisdiction.

Daimler Canada is a wholly owned subsidiary of Daimler Buses North America, Inc. (“Daimler New York”), a New York corporation.  Daimler Canada maintained that it had no operations in New York on which to base personal jurisdiction.  Hume attempted to show that Daimler Canada’s relationship with Daimler New York was so close that the corporations were “alter egos” of one another, and should be treated as a single entity over which personal jurisdiction could be obtained.

The District Court noted that the typical two-step personal jurisdictional analysis conflates into one step where the asserted basis for jurisdiction is alter-ego:  If the court finds the non-resident corporation to be the alter ego of a resident corporation, it “necessarily finds that jurisdiction comports with federal due process.”  The Court also noted that the determination whether entities are alter egos for jurisdictional purposes “requires application of a less stringent standard than that necessary to pierce the corporate veil for purposes of liability.”

The Court applied a four-factor test focusing on: (1) whether the entities have “nearly identical ownership interests”; (2) the subsidiary’s financial dependency on the parent; (3) the degree to which the parent and subsidiary observe corporate formalities, and; (4) the parent’s control over the subsidiary’s operational policies.  With respect to Daimler Canada, the Court found that three of the four factors weighed in favor of a finding of alter ego and therefore found that it had personal jurisdiction over Daimler Canada.

With respect to Tarten, New York law allows courts to exercise jurisdiction over a defendant that “commits a tortious act without the state causing injury to person or property within the state,” so long as one of two conditions are met:  either (i) the defendant “regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in [New York],” or (ii) the defendant “expects or should reasonably expect the act to have consequences in [New York] and derives substantial revenue from interstate or international commerce.”  Further, in order to accord with federal due process requirements, New York courts have read into the second condition the requirement that the defendant “purposefully avails itself of the privilege of conducting activities within the forum state.” 

Tarten asserted that its contacts with New York were insufficient to satisfy these requirements:  That it does not perform repairs in New York, and is not authorized to do business, does not maintain offices, has no accounts, does not pay taxes, and does not lease, own, or possess property in New York.  Hume responded that Tarten is a large, international company with over a million dollars in international sales, that its employees frequently traveled into New York to service vehicles, frequently sold parts to New York customers and has over 100 customers in New York, made frequent service trips to companies located in New York, advertised its products and services in publications distributed in New York (and across the US), and occasionally took referrals for the repair of New York buses. 

The Court acknowledged that these facts showed Tarten had purposefully directed activities toward New York, but that such facts would only go to establish specific personal jurisdiction and would not be relevant because none of those activities gave rise to the claims of negligent maintenance at issue in the case, as would be required for jurisdiction to attach.

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