Defining the Liability of an Overseas Parent Company
This article originally appeared in Corporate Counsel, an affiliate of the Litigation Daily.
When can a foreign corporation be held liable for alleged harm caused by a product that was totally handled by a U.S. subsidiary?
That’s the question that the Danish company Novo Nordisk A/S is asking the U.S. Supreme Court to resolve. On September 16, the Washington Legal Foundation and the International Association of Defense Counsel joined the company’s cause in an amicus brief.
“Plaintiffs’ attorneys often sue both an American company and its foreign parent corporation [because] they realize that doing so increases settlement pressure,” said WLF chief counsel Richard Samp in a statement.
Samp, lead counsel on the brief, continued, “Suing both corporations increases both the money and the executive man-hours that the defendant must devote to the lawsuit—thereby increasing the likelihood that the defendant will feel forced to settle the lawsuit without regard to its underlying merits. Such gamesmanship is not consistent with traditional notions of fair play and substantial justice.”
The ruling will be important to general counsel because it could provide guidance on what a company can do to keep the foreign parent from being dragged into U.S. courts.
The case involves an Oregon woman who developed breast cancer after taking a Novo Nordisk hormone-therapy medicine made in Denmark. She sued both the U.S. company and its foreign parent in a state court in Oregon, which granted jurisdiction over both companies.
It shouldn’t have, the parent company argues. Novo Nordisk says it merely ships the drug to a central provider in Indiana and “that concludes [its] involvement.” The U.S.
company, its brief says, controls the distribution and is liable for complying with all U.S. drug regulations.
In the amicus brief, WLF and the IADC said the Due Process Clause of the Fourteenth Amendment bars a state from exercising jurisdiction over out-of-state defendants when doing so offends “traditional notions of fair play and substantial justice.” Especially when the plaintiff can seek all available relief from the U.S. company.
The brief notes that the Supreme Court “has been reluctant to establish broad rules” governing such jurisdiction. But it also contends that “businesses are being provided inadequate guidance regarding the sorts of conduct that may render them liable to suit within any or all of the 50 States.”
Without such guidance, it’s difficult for general counsel and their businesses to know what conduct to change in order to eliminate litigation risks, the brief adds.
What’s more, it says, the “unnecessary expansion of litigation exposure will discourage foreign investment in American health care.”