Posted by on Jan 11, 2017 in Direct Investment from China, Dispute Resolution |

An India-based pharmaceutical company, Dishman Pharmaceuticals and Chemicals, Inc. (“Dishman”), won a significant victory on December 29, 2016, when the Appellate Division of the New Jersey Superior Court held that Dishman could not be sued in state court even though one of its subsidiaries, Dishman USA, Inc., is located in New Jersey.

The litigation arose from the failed sale of a Chinese manufacturing facility owned by a Dishman subsidiary in China to FDASmart, Inc., a New York-based company. The Memorandum of Understanding (“MOU”) between Dishman and FDASmart provided that FDASmart would be paid certain consulting fees in connection with the transaction. It also stated that the deal was to governed by the laws of India, a non-disclosure agreement was to be signed in India, and fees were to be paid with applicable Indian taxes. When the deal fell through, FDASmart filed suit against Dishman and Dishman USA in the Law Division of the New Jersey Superior Court, alleging Dishman breached the MOU by failing to pay consulting fees to FDASmart.

After the Law Division initially found that it had general jurisdiction over the dispute due to the presence of Dishman’s subsidiary in New Jersey, the Appellate Division reversed, holding that Dishman lacked “continuous and systematic contacts” with New Jersey to justify it being “haled” into its courts. The Appellate Division refused to assert jurisdiction based solely on the technicality of ownership of the subsidiary by the parent company and held that FDASmart needed to demonstrate the “dominance” of Dishman USA by Dishman via other factors such as “common ownership, financial dependency, interference with a subsidiary’s selection of personnel, disregard of corporate formalities, and control over a subsidiary’s marketing and operational policies.” Since the evidence in the record showed Dishman USA operated independently of and was not financially dependent on Dishman, the Appellate Division determined that the New Jersey courts lacked general jurisdiction over Dishman and dismissed it as a defendant.

While this decision is generally favorable to foreign pharmaceutical companies with subsidiaries in New Jersey, it is a fact-specific outcome that may not be repeated in situations where parent-subsidiary operations are intertwined and subsidiaries are dependent on parent companies for decision-making and financial matters. Careful analysis and restructuring may be required to operate within the confines of the court’s decision and avoid imputation of liabilities upon the parent company.

Hill Wallack LLP represents over 20 companies in the life sciences sector, including biotechnology, therapeutic, diagnostic, pharmaceutical, biopharmaceutical, biomedical and biosynthesis companies. The firm assists these clients in connection with intellectual property, technology transfer, university spin-outs, venture capital and finance, employment, regulatory and mergers and acquisition issues.

This article is for informational purposes only and does not constitute legal advice or a legal opinion.

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Update on Ralls Corporation v. CFIUS, et al.

Posted by on Nov 27, 2012 in Direct Investment from China, Dispute Resolution |

By: Kun Zhao, Esq.

On September 12, 2012, Ralls Corporation (“Ralls”) filed a lawsuit in the United States District Court for the District of Columbia against the Committee on Foreign Investment in the United States (“”CFIUS”) and Timothy F. Geithner, in his official capacity as the Chairperson of CFIUS, alleging that CFIUS’ order which prohibited Ralls from accessing the project site and continuing operations and construction work at acquired properties are in violation of the Administrative Procedure Act and unconstitutional deprivation of private property without due process.  In the complaint, Ralls seeks a declaratory judgment enjoining enforcement of the order issued by CFIUS.

The case is significant because it is first direct challenge to the validity of an order issued by CFIUS pursuant to the Defense Production Act.  The following is an account of recent developments in the case.

On September 13, 2012, Ralls filed a motion for a temporary restraining order and preliminary injunction to enjoin the enforcement of CFIUS’ order.  On September 19, 2012, Ralls and CFIUS reached an agreement which allows Ralls to conduct limited preliminary activities at the acquired properties.  On the same day, Ralls withdrew its motion for a temporary restraining order and preliminary injunction.

On September 28, 2012, President Obama issued an order which prohibited Ralls’ acquisition and ordered Ralls to divest all interests acquired in the transaction.  The order further directed Ralls to cease all operations at the acquired properties and remove all items, structures or physical objects from the acquired properties.

On October 1, 2012, Ralls amended its complaint to add President Obama as a defendant.  It continued to pursue its lawsuit on the ground that the actions of CFIUS and President Obama are in violation of Administrative Procedure Act, beyond authority conferred under the Defense Production Act, and unconstitutional deprivation of private property without due process.  Defendants’ answer to Ralls’ amended complaint is due by December 8, 2012.

On October 29, 2012, defendants filed a motion to dismiss for lack of subject matter jurisdiction, alleging that the Defense Production Act precludes judicial review of President’s order.  A motion hearing will be held on November 28, 2012.

Discovery in the matter is stayed pending the Court’s ruling on the motion to dismiss, which is scheduled to be heard on November 28, 2012.

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Purchase Money Security Interest-A Useful Recovering Device in International Trade

Posted by on Apr 4, 2012 in Dispute Resolution, International Trade |

By: Kun Zhao, Esq.

In international trade, suppliers of goods often sell on credit to their customers, facing credit risks especially when the customers are experiencing financial difficulties in this economy. Sellers have growing concerns when their customers start to delay payments or even stop payments. How to recover something from the defaulting customer to mitigate the loss is a frequently asked question. The reality is that the delay or failure to pay is often due to the customer’s financial difficulties or even insolvency. If the financially distressed customer files bankruptcy, the seller will probably not receive a recovery, as the customer’s primary lenders normally have earlier-filed security interest in the customer’s assets, including the goods, and therefore have priority in recovery over the seller.

There is a relatively simple protection device that Chinese suppliers have rarely used, called the Purchase Money Security Interest under the Uniform Commercial Code (“UCC”) Article 9 (“PMSI”), which to some extent affords a certain level of protection in securing the seller’s interest in the goods to mitigate the loss if the customer defaults. In some common cases, it could provide Chinese suppliers with superior recovery rights in the goods themselves or the identifiable proceeds from the goods when the customer is insolvent or files bankruptcy. This device is widely used in the sale of large equipment or in a series of sales of goods in inventory for further manufacturing or resale.

A PMSI under UCC §9-103 is defined as a security interest in goods that are taken in collateral to the extent that it secures all or part of the purchase price of the collateral (the goods). In the sale of goods scenario, it is a security interest in collateral created by a seller who secures the obligation to pay the purchase price of goods sold on credit to a customer. A properly perfected PMSI gives the seller of goods on credit with “super priority” in the goods and the identifiable cash proceeds from the goods, trumping other creditors who have a conflicting security interest in the same goods, including those who have earlier-filed security interest in the customer’s assets and inventory in general.

New Jersey and New York have adopted the UCC. The UCC rules for acquiring a PMSI are set out in UCC §9-324. To achieve priority over an earlier-filed security interest in the same goods, the seller and its customer must:

(1)        execute a security agreement, which can be part of the sales agreement. The collateral in the security agreement must relate only to the goods that will be sold to the customer in the future;

(2)        the PMSI must be perfected by filing the appropriate financing statements with the secretary of state or other filing agency in the state where the customer is legally organized when the debtor receives possession of the collateral. In other words, the seller must file the financing statement before the goods are delivered;

(3)        the seller must give written notice to the holder of the conflicting security interest if the holder of that conflicting security interest has filed a financing statement. Any earlier-filed conflicting security interest holder can be found through a UCC filing search at the filing agency in the state;

(4)        This notice must be received by the holder of the other security interest before the debtor receives possession of the purchase-money collateral (the goods), and is valid for a period of five years;

(5)        the notification must state that the person giving the notice has or expects to acquire a purchase money security interest in inventory of the debtor, describing such inventory by item or type.

If sellers have taken proper steps above, they will have priority over earlier, normally superior, security interests that cover the same goods. Sellers will have additional remedies in collecting their receivables, or will have priority to retrieve and resell goods sold on credit for which the customers failed to pay.

Therefore, the PMSI is a valuable tool to help Chinese suppliers in managing credit risks in international trade. It affords Chinese suppliers security rights senior to their customers’ lenders in the goods sold on credit and gives them a better chance to recover at least something rather than nothing.

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New Trade Secrets Act Requires Review of Employment Agreements

Posted by on Jan 13, 2012 in Dispute Resolution, Employment and Labor |

By:  Christina L. Saveriano, Esq. and David J. Truelove, Esq.

Your most important business asset is that which sets you apart from your competitors. If that asset is protectable, confidential information and/or a “trade secret,” reviewing and analyzing recently-passed New Jersey legislation is required reading.

Gov. Chris Christie has recently signed the New Jersey Trade Secrets Act. This law has significant implications for employers that possess information protected under the Trade Secrets Act. This warrants review of any current employment agreements and restrictive covenants currently in place for revision. Likewise, employers should consider entering into such agreements with employees if no such agreements are in place.

As a starting point, employers should review any existing agreements which define the term “trade secret” to confirm that it is consistent with the definition under the Trade Secrets Act. In addition, employers should consider alerting employees to the consequences of misappropriation of the employer’s trade secret which under the Trade Secrets Act include the entry of injunctive relief, imposition of punitive damages and an award of costs and attorney’s fees.

Furthermore, employers should be aware that an action for misappropriation of a trade secret against an employee, under the Trade Secrets Act, must be brought within three years after the misappropriation is discovered. Passage of the New Jersey Trade Secrets Act now creates a statutory right for employers where only case law has existed to date.

We at Hill Wallack LLP stand ready to assist with any questions and assistance needed in view of this new legislation.

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Take Advantage of Your Domestic Forum-A Judgment Rendered in a Competent Court in China May Be Enforced in New Jersey and New York

Posted by on Nov 15, 2011 in Dispute Resolution |

By: Kun Zhao, Esq.

The United States is the largest trading partner of China. With the trading volume reaching $385.3 billion in 2010, disputes between companies in both countries in the international trading and investment business arena are unavoidable and mounting.

When resolution through good faith negotiations is infeasible and lawsuits are inevitable, parties will be predisposed to file litigation in their domestic forums. In this context, the critical question is whether a domestic judgment will be enforceable in the other country. As to Chinese companies, the general answer is yes in New Jersey, New York, and also many other states in the U.S.

In the United States, state law governs the recognition of judgments by a foreign country or sister state. In 1962, the National Conference of Commissioners on Uniform State Laws approved and recommended for enactment the Uniform Foreign Money-Judgments Recognition Act (“UFMJRA”). The UFMJRA applies to non-U.S. court judgments granting or denying the recovery of a sum of money. More than half of the states, including New Jersey and New York, have adopted the UFMJRA or some part of it.

In New Jersey, the Foreign Country Money-Judgment Recognition Act, N.J.S.A. 2A:49A-16 to 24 (“FCMJRA”), provides the statutory basis for enforcing judgments of other nations in New Jersey. According to FCMJRA, New Jersey’s courts must recognize a final foreign country judgment for money damages unless the judgment debtor establishes one of the specific grounds for non-recognition that are enumerated in the FCMJRA. New York Civil Practice Laws and Rules Article 53 largely mirrors New Jersey FCMJRA.

A  judgment rendered in China has been recognized in United States District Court for the Central District of California and affirmed by the Ninth Circuit, where California has similar laws adopting Uniform Foreign Money-Judgments Recognition Act. See, Hubei Gezhouba Sanlian Industrial Co. v. Robinson Helicopter Company, Inc., 2009 WL 2190187 (C.D. Cal. 2009), affirmed, 425 Fed.Appx. 580, 2011 WL 1130451 (9th Cir. 2011).

Therefore, monetary judgments of competent courts in China may be enforced in New Jersey and New York without a prior determination by state courts. In New Jersey, such money-judgments may be enforced by filing with the Clerk pursuant to N.J.S.A. 2A:59A-27.

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