Court Declines to Impute Minimum Contacts of Subsidiary to Parent Corporation under Maryland Long Arm Statute in National Fire & Marine Ins. Co. v. Advanced Lighting Technologies, LLC (U.S.D.C. Md.)

Filed: September 20, 2023

 

Opinion by: J. Rubin

 

Holding: the Court held that the relationship between the subsidiary and parent corporation, which included filing consolidated tax returns, having the same directors elected to both boards, and a trademark license issued by the parent to the subsidiary, was insufficient to establish personal jurisdiction over the parent corporation under Maryland’s long-arm statute.

Facts: The Plaintiff, National Fire & Marine Insurance Company, as subrogee of Manticorp LLC, brought this action following a fire at a commercial property leased by Manticorp. The Plaintiff alleged that the fire was caused by defective lighting products supplied by Advanced Lighting and Venture Lighting International Inc., which are associated entities. The complaint set forth various counts including Products Liability, Negligence, and Breach of Implied Warranties.

Advanced Lighting, however, contested the court's personal jurisdiction over it, citing insufficient minimum contacts with the State of Maryland. Following limited discovery on the matter, Judge Rubin concluded that the Plaintiff failed to establish grounds for jurisdiction under Maryland's long-arm statute. The court found that National Fire's allegations, even if true, were insufficient to impute Venture Lighting's Maryland contacts to Advanced Lighting for jurisdictional purposes.

Plaintiff had alleged that Advanced Lighting should be treated as the alter ego of its subsidiary, Venture Lighting, because: (1) Venture Lighting is a wholly owned subsidiary of Advanced Lighting; (2) Venture Lighting and Advanced Lighting have common ownership; (3) Advanced Lighting sets sales and earning goals for Venture Lighting; (4) Advanced Lighting consolidates financial statements and submits a single tax return for itself and its subsidiaries; and (5) Advanced Lighting does not have formal arrangements with Venture Lighting.

Analysis:

 

The Court began its analysis with the Maryland long-arm statute, which provides authority for a Maryland-based court to exercise jurisdiction over a non-resident defendant that directly conducts activities, such as providing services, selling goods, or causes tortious injury, in Maryland, or does so through an agent. Md. Code Ann. Cts. & Jud. Proc. §§ 6-103; Mylan Labs, Inc. v. Akzo, N.V., 2 F.3d  56 (4^th cir. 1993). The plaintiff alleged that Advanced Lighting could be imputed the minimum contacts of its subsidiary, Venture Lighting International Inc., essentially arguing that the subsidiary was an “alter ego” of the parent corporation for purposes of the long arm statute.

 

The Court next examined Mylan Laboratories case that establishes that under Maryland law, a parent corporation can be treated as an alter ego of a subsidiary under the “agency” test, if the parent corporation “exerts considerable control over the activities of the subsidiary.” The Mylan court discussed several factors in determining whether the parent exercises such control, such as whether significant decisions of the subsidiary must be approved by the parent, whether the two have separate books and records, employ separate accounting procedures, and hold separate directors’ meetings, along with the level of interdependence of the two corporations, and whether the parent corporation knew or should have known that its conduct would have some impact in Maryland. Mylan Labs, Inc., 2. F.3d at 61-62.

 

In the present case, the Court concluded that the parent could not be treated as the alter ego of its subsidiary, reasoning that on balance, the evidence adduced by the parties did not suggest that Advanced Lighting exerts considerable control over the subsidiary corporation, or that Venture Lighting’s significant decisions are subject to the parent’s approval. The Court reasoned that filing consolidated tax returns, being a 100% owned subsidiary where both boards are comprised of the same directors, and having a trademark license issued by the parent to the subsidiary for a product sold by the subsidiary was insufficient to impute the contacts with Maryland of the subsidiary to the parent for purposes of personal jurisdiction.

 

As a result, the Court granted Advanced Lighting’s motion to dismiss for lack of personal jurisdiction.

 

Full opinion here.

Stricken Permissive Counter Claims Not Barred by Doctrine of Res Judicata under Summers v. Beltway Builders, Inc. (App. Ct. of Md.)

 

Filed: February 7, 2023

Opinion by: Friedman, J.

Holding: A dismissed permissive counter-claim cannot be barred by the doctrine of res judicata when subsequently filed by the former defendant in a subsequent lawsuit against the former plaintiff.

Facts: The dispute originated when homeowners James Summers and Dr. Steven Snyder contracted Beltway Builders, Inc. for home remodeling. A disagreement arose over the performance, leading Beltway to sue for breach of contract and unjust enrichment, while the homeowners filed a late counterclaim for breach of contract. Beltway then filed a motion to strike the counterclaim. The homeowners, therefore, filed the instant, separate suit against Beltway. The homeowners prevailed in the original lawsuit filed by Beltway, and Beltway defended the subsequent lawsuit on the grounds of res judicata.

Analysis: The doctrine of res judicata bars re-litigating civil claims after such claims have had their day in court and a final judgment on the merits has been entered by the court. Under Maryland law, the elements of res judicata are: (1) that the parties in the present litigation are the same or are in privity with the parties to the earlier litigation; (2) that the claim presented in the current action is identical to the one determined or which could have been brought in the prior litigation; and (3) that there was a final judgment on the merits in the prior litigation. Spangler v. McQuitty, 449 Md. 33, 65 (2016). Under Rowland, however, courts will not find that a party's claims are barred by res judicata when that party still has the right to bring them as an independent suit. Rowland, 320 Md. at 232-33.

The circuit court had dismissed the homeowners' separate lawsuit, filed later, based on the doctrine of res judicata, deciding that the homeowners should have initially brought their claims as counterclaims in Beltway's lawsuit. However, the Appellate Court held that under Maryland Rule 2-331(a), counterclaims are permissive, not mandatory. Citing Rowland v. Harrison and other sources, the court underscored that Maryland law does not force defending parties into a 'use it or lose it' situation regarding counterclaims.

Consequently, the appellate court found that the lower court's dismissal based on res judicata was erroneous, as it conflicted with the flexible nature of Maryland’s counterclaim rules. The judgment was reversed, and the case was remanded.

For the full opinion, please refer to the PDF document linked here.

 

Tim Faith is a practicing business law and estates planning attorney, and also an associate professor at The Community College of Baltimore County, where he teaches business law, legal writing, and torts.

 

Tim also serves as the chair of the Maryland Business Law Developments blog, a service of the Business Law Section of the MSBA.