Recent Appellate Decision Signals that New York Courts Will Respect the Separation between International Companies and Their Subsidiaries in New York

May 7, 2018 – Press Release
Herrick, Feinstein LLP

Today, the New York State Appellate Division, First Department dismissed our client -- the largest Israeli defense, aerospace and aviation company -- from a pending commercial litigation for lack of personal jurisdiction. This is a significant win for our client, and it makes it more difficult for international companies to be sued in New York in the future, solely on the basis of their corporate family’s New York presence.

In this case, the plaintiff attempted to establish personal jurisdiction over an Israeli company in New York based on a theory that the foreign parent company’s wholly owned subsidiary operates as its domestic branch or “mere department” in the United States. This theory is a limited exception to the respected jurisdictional separation between corporate affiliates.

While the trial court applied the requisite four part test and allowed the plaintiff to begin jurisdictional discovery, the First Department held that the plaintiff failed to satisfy the test, which considers (i) the existence of common ownership, (ii) financial dependency of the subsidiary on the parent, (iii) the degree to which the parent interferes in the selection and assignment of the subsidiary’s executive personnel and fails to observe corporate formalities, and (iv) the degree of the parent's control over the subsidiary's marketing and operational policies.

If you’re an international company with wholly-owned subsidiaries or affiliates operating in New York, this decision signals that courts will maintain and respect the separation of corporate affiliates, provided you conduct business with a set of best practices that will ultimately thwart a crafty plaintiff’s attorney from hauling a foreign parent company into a New York court by contending that corporate separation is more formal than real. The decision may be found on Westlaw at Wolberg v. IAI North America Inc., et al., 2018 WL 2106726, Index No. 653621/16 (1st Dep’t May 8, 2018).