Recom Corp. v. Miller Bros., No. 16-3320, (D.N.J. Aug. 16, 2018) [click for opinion]

In June 2014, electrical contractor Miller Brothers (“Miller”) entered into a supply agreement with Recom Corp. to purchase solar panels for three construction projects in New Jersey. The supply agreement defined the “Contractor” as Miller and the “Vendor” as “Recom Corp…. its parents, subsidiaries, affiliates and assigns.” Recom Corp. did not procure the solar panels itself, despite being a party to the supply agreement. Instead, Recom Corp. orally contracted with “Recom AG” and then transferred Miller’s deposit to a bank account held by Recom AG. The Recom Corp./Recom AG agreement was not memorialized in any written agreement, and there were no supporting documentation. Weeks after receiving the deposit, Recom AG entered into supply agreements to purchase solar panels from third-party manufacturers in Taiwan and Italy. Those contracts provided that the solar panels were to be shipped to New Jersey so that Recom AG could fulfill Recom Corp.’s supply agreement with Miller.

After a dispute between Recom Corp. and Miller arose with respect to which party was responsible for paying tariffs on the imported solar panels, Miller initiated an arbitration in November 2014. The arbitration hearing took place in December 2015, and, in March 2016, the arbitration panel held that “Recom and its parents, successors, affiliates and assigns, jointly and severally, shall pay Miller” more than $1 million in damages.

In June 2016, Recom Corp. filed a petition before the federal district court in New Jersey to vacate the arbitration award on grounds that the arbitrators exceeded their authority and violated Recom Corp.’s due process rights by rendering the award against “unidentified parents, successors, affiliates, and assigns” who were not parties to the arbitration. After Miller filed a counterclaim against both Recom Corp. and Recom AG, Recom AG filed a motion for judgment on the pleadings, contending, among other things, that the district court lacked personal jurisdiction over Recom AG as a non-signatory to the supply agreement. The district court ultimately denied the motion after the completion of jurisdictional discovery, holding that the arbitration panel correctly asserted its arbitral jurisdiction over Recom AG.

The district court found that Miller satisfied its burden of making a prima facie showing that Recom Corp. had apparent authority to bind non-signatory Recom AG to the supply agreement. The district court noted several facts to support the conclusion that it was reasonable for Miller to believe that Recom Corp. had the authority to bind Recom AG when executing the supply agreement. First, Miller had served the arbitration demand on Recom Corp. and its “parents, successors, affiliates, and assigns” while Recom Corp., in response, asserted counterclaims based on contracts that Recom AG had entered into with the third-party solar panel manufacturers. The district court further noted that Recom Corp. and Recom AG shared “numerous similarities,” including the same logo, same email address, same website, and same European headquarters. Moreover, the only two owners and officers of both companies are brothers who were directly involved in the negotiation of the supply agreement with Miller.

The district court then undertook an alter ego analysis to conclude that Recom Corp. functions as Recom AG’s alter ego for purposes of the supply agreement. Citing Third Circuit and New Jersey corporate veil-piercing precedent, the district court ruled that Miller also made a “prima facie case that there was a serious ambiguity about the manner and capacity in which the various corporations and their respective representatives are acting.” The district court pointed out that Miller had only interacted with five individuals during the drafting and negotiations of the supply agreement, with each of those individuals holding senior positions “across the various Recom entities.” Further, the court noted that (i) Recom Corp. was grossly undercapitalized, (ii) transferred “the half-million dollar deposit without any invoices or documentation under an oral contract” and thus did not meet corporate formalities, (iii ) did not pay dividends or function with any other officers or directors, and, (iv) by virtue of having no employees other than the two brother owners, acted as a “mere façade for dominant stockholders.” As such, the district court concluded that Miller “provided competent evidence to support a prima facie case that Recom Corp. functioned as the corporate alter ego of Recom AG,” such that “the indispensable personal jurisdiction of Recom Corp. may be imputed to Recom AG.”

Having ruled that personal jurisdiction over Recom AG was proper, the district court denied Recom AG’s motion on the pleadings, thereby affirming that the arbitral panel had properly exercised jurisdiction over both Recom entities.

A version of this post originally appeared in the November 2018 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.

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