After holding an evidentiary hearing, a federal judge has restated her decision finding that McNeil Pharmaceuticals, the maker of Tylenol, is a New Jersey company.
U.S. District Judge Mary A. McLaughlin of the Eastern District of Pennsylvania denied requests from the parents of a boy who died after taking children’s Tylenol to reconsider her initial rejection of their motion for remand to the Philadelphia Court of Common Pleas or certify it for interlocutory appeal.
Last November, McLaughlin had ruled that because McNeil, a wholly owned subsidiary of Johnson & Johnson that is the maker of the allegedly defective children’s Tylenol that killed the 2-year-old boy in Washington, is run primarily by executives of its parent company in New Jersey, the company is a citizen of that state, not Pennsylvania, where the medicine was produced.
“That was the court’s conclusion after its initial review of the record, and the facts adduced at the evidentiary hearing only reinforce this conclusion,” McLaughlin said.
Her initial opinion was also bolstered by the U.S. Court of Appeals for the Third Circuit’s recent opinion in Johnson v. SmithKline Beecham, finding that the pharmaceutical giant’s U.S. base for its holding company is the single office it rents in Wilmington, Del.
In that case, the Third Circuit “recognized that a corporation’s nerve center may lie outside its corps of officers,” McLaughlin said.
“The court of appeals upheld the district court’s determination that GSK Holdings’ officers in London and Philadelphia did not direct its activities, and that the company was instead controlled by its directors during regular meetings at GSK Holdings’ office in Wilmington, Delaware. Accordingly, GSK Holdings’ nerve center was in Wilmington, not another locale,” she said.
“In reaching this conclusion, the Johnson court rejected a formalistic reading of Hertz that would limit the nerve center to a company’s officers in favor of a more pragmatic construction of the nerve center test that focuses on the actual center of coordination and control,” McLaughlin said.
She was referring to the U.S. Supreme Court’s 2010 decision that settled confusion over Congress’ intended meaning for the term “principal place of business” in the statute defining a corporation’s state of citizenship when it endorsed Hertz v. Friend‘s “nerve center” test, which finds the geographic location of the company’s brain. That location establishes the company’s state of citizenship.
“This court’s conclusion that executives of a related entity may constitute a corporation’s nerve center sits comfortably with the Third Circuit’s reasoning and holding in Johnson,” she said.
Since McLaughlin had made her first ruling before having the benefit of the Third Circuit’s decision in Johnson, she had looked to a pre-Hertz opinion from the Third Circuit in 1998 called Mennen v. Atlantic Mutual Insurance, in which the court held that a company’s headquarters were located in New Jersey because that is where the bulk of the people making decisions for its U.S. operations were located.
Although that one and similar opinions from the Fifth Circuit have been displaced by Hertz, McLaughlin had found that they still “retain vitality.”
“This court concludes that the principal place of business inquiry may peer beyond a party’s corporate form and look to the activities of individuals who actually control and direct the corporation from distinct, but related, corporate identities,” McLaughlin had said in her initial opinion.
The evidentiary hearing she held supported that finding, she ruled, denying the motion for reconsideration and for interlocutory appeal.
(Copies of the 28-page opinion in Moore v. Johnson & Johnson, PICS No. 13-2696, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)