City and County of San Francisco v. Purdue Pharma L.P.

Background

Teva Pharmaceutical Industries Ltd. filed a petition asking the United States Court of Appeals for the Ninth Circuit to review the district court’s jurisdictional ruling through mandamus, an extraordinary procedure for asking an appellate court to direct a lower court to act or correct a claimed legal error. The district court judge submitted this statement in response to that petition.

The underlying litigation involves the City and County of San Francisco and the People of the State of California, acting through San Francisco City Attorney Dennis J. Herrera. The district court had concluded that the plaintiffs’ allegations plausibly supported personal jurisdiction over Teva under an alter-ego theory involving Teva and its U.S. subsidiaries. Under that theory, a court may treat a parent and subsidiary as sufficiently unified to support jurisdiction when the parent exercises the required degree of control and the facts justify disregarding the corporate separation.

The jurisdictional allegations

Judge Breyer said the plaintiffs alleged that Teva controlled and transferred its U.S. subsidiaries’ cash and accounts receivable, commingled funds and other assets, used the same employees, had virtually identical officers and committee members, manipulated subsidiary assets for Teva’s benefit, controlled high-level and day-to-day decisions, and integrated the subsidiaries into a single economic unit.

The statement rejected Teva’s argument that the plaintiffs were required to show undercapitalization, inadequate record-keeping, or a lack of corporate formalities. Judge Breyer explained that the unity-of-interest inquiry ultimately concerns control and is based on a fact-specific, multi-factor analysis. He said undercapitalization and similar circumstances may be relevant but are not necessarily required, and that no single factor controls.

Pleading and evidence

Judge Breyer also rejected Teva’s argument that the plaintiffs had not pleaded a viable jurisdictional theory because the district court relied on allegations outside the complaint. He stated that the law permits a court to consider affidavits and other materials when deciding personal jurisdiction and may allow discovery on jurisdictional issues.

At the motion-to-dismiss stage, the court treated the plaintiffs’ allegations as true and resolved factual conflicts in their favor for purposes of deciding whether they had made a prima facie showing of personal jurisdiction. A prima facie showing is an initial showing sufficient to allow the issue to proceed, rather than a final determination after all evidence has been presented.

Factual disputes and planned procedure

The statement said the parties disputed material jurisdictional facts, including allegations concerning Teva’s control over a special-purpose entity and the commingling of subsidiary revenue. Judge Breyer stated that the court could resolve those disputes at a preliminary hearing or at trial. He further stated that jurisdictional discovery could proceed alongside discovery on the merits and that the court would later choose between a preliminary jurisdictional hearing and resolving the issue at trial, depending on whether the jurisdictional facts were intertwined with the underlying claims.

The statement did not address Teva’s separate successor theory of personal jurisdiction because the underlying district court order had not analyzed that theory.

Ruling or position stated

Judge Breyer maintained that the district court’s jurisdictional ruling was consistent with applicable law and that the plaintiffs’ allegations were sufficient to survive Teva’s motion to dismiss for lack of jurisdiction. He also denied Teva’s suggestion that the district court had pressured it to settle, stating that Teva remained free to settle or proceed to trial. The statement concluded by respectfully submitting that the Ninth Circuit should deny Teva’s mandamus petition.