There is a lot of prescription drug/device litigation in state court (or at least some state courts) in both Pennsylvania and New Jersey.  That’s because, over the years a lot of large manufacturers have chosen to locate here for what we assume to be a host of good and legitimate business reasons.

But the litigation climate in both these states leaves quite a bit to be desired.

Can anything be done about that at this point given the tremendous investments already made in existing facilities?

Maybe so.

Take a look at White v. SmithKline Beecham Corp., 2010 WL 3119926 (E.D. Pa. Aug. 5, 2010).  The court holds that a corporate reorganization, involving (in part) the creation of a Delaware limited liability corporation with its sole member being a Delaware holding company was sufficient to change the defendant’s citizenship from Pennsylvania to Delaware.  Because of LLC law, the new “corporate nerve center” test of Hertz Corp. v. Friend, 130 S.Ct. 1181 (2010), was conducted on the Delaware holding company – not on the holding company’s major operational subsidiaries.  White, 2010 WL 3119926, at *2-3.

The court’s conclusion that the defendant in White was, after the restructuring, a citizen of Delaware rather than Pennsylvania meant that Pennsylvania was no longer its home forum.  That in turn meant that the case was removable under federal law.  Thus the defendant in White escaped the Philadelphia Court of Common Pleas for the relatively more congenial (from a defense perspective) forum of the United States District Court for the Eastern District of Pennsylvania.  Equally importantly, it was able to change its legal citizenship without disrupting its substantial manufacturing and operational functions – no need to pull up stakes and build new facilities elsewhere.

Equally important, the court got the proper interpretation of the Pennsylvania statute governing corporate dissolutions right – there never was a “dissolution” because at all times an entity capable of being sued continued to exist – in sharp contrast to other courts we know.

We don’t claim to be corporate transactional gurus here (we have plenty of colleagues who do that), but companies who are sick and tired of being sued in their inhospitable “home” forums by plaintiffs from all over the country might want to take a closer look at what happened in White.