By Shannon Duffy
U.S. Courthouse Correspondent

A couple who claim their 1-year old son died as a result of taking Infants’ Tylenol has won the right to pursue their products liability suit in the Philadelphia Court of Common Pleas now that a federal judge has ruled that the case was improperly removed to U.S. district court.

In his 14-page opinion in Dunson v. McNeil-PPC Inc., U.S. District Judge Eduardo C. Robreno found that while the drug’s manufacturer is incorporated in New Jersey, it must also be considered a citizen of Pennsylvania because that is its principal place of business.

As a result, Robreno found that McNeil cannot remove a Pennsylvania state court lawsuit to federal court on the basis of diversity of citizenship.

“For purposes of determining whether there is diversity of citizenship, a corporation is deemed a citizen of both the state where it has its principal place of business,” Robreno wrote.

The ruling is a victory for attorney David F. Binder of Raynes McCarty Binder Ross & Mundy, who contends in the suit that Marquis Matthew Dunson’s death in March 2002 could have been prevented if Infant Tylenol had carried proper warnings about the risk that slight overdoses could cause liver failure.

According to the American Academy of Pediatrics, there are more than 30,000 instances each year of overdoses of Tylenol, or acetaminophen, among infants and children.

Infants’ Tylenol is about three-and-a-half times more concentrated than Children’s Tylenol, and studies have shown that parents sometimes confuse the two. Those studies prompted McNeil to introduce new labeling for Infant’s Tylenol in 1997.

McNeil’s lawyers—Laurie E. Wady and Bruce W. Clark of Dechert—argued that the case should remain in federal court because McNeil is a citizen of New Jersey only. In their brief, the Dechert lawyers noted that the company’s entire board of directors and many of its senior executives are located in New Jersey.

Robreno found that such evidence would be strongly persuasive if the court were applying the “nerve center” test for determining a company’s principal place of business.

But under the law of the 3rd U.S. Circuit Court of Appeals, Robreno said, courts must apply the “center of corporate activities” test.

Under that test, adopted by the 3rd Circuit in its 1960 decision in Kelly v. U.S. Steel Corp., courts must ascertain “the headquarters of day-to-day corporate activity and management.”

Although the location of the board of directors is one factor in the test, Robreno found that Kelly instructed trial judges to focus on the “business by way of activities” in determining a company’s principal place of business.

“In other words,” Robreno wrote, “a corporation’s principal place of business is not ‘where...final decisions are made on corporate policy,” but rather where the corporation ‘conducts its affairs.’”

Robreno found that the “most significant” of the Kelly factors is the location of “headquarters of the day-to-day corporate activities and management decision.”

McNeil argued that three New Jersey managerial employees comprise its board of directors and have been delegated responsibility for managing McNeil-PPC’s operations as a whole.

But Robreno found that “others are responsible for managing significant portions” of McNeil-PPC’s day-to-day operations.

“It is true that the three executives who comprise the McNeil-PPC board of directors and who exercise overall policy-making responsibility are located in New Jersey. But as counsel for McNeil-PPC acknowledged at the hearing, these executives are not responsible for the day-to-day operations of the company,” Robreno wrote.

Robreno found that the McNeil division that manufactures Infant Tylenol has 12 vice presidents and a president, all with offices located in Fort Washington, Pa.

As for the McNeil-PPC work force, Robreno found that 51 percent of its roughly 3,400 employees are located in Pennsylvania, while only 267 employees are located in New Jersey.

The company’s physical locations also point to Pennsylvania as its principal place of business, Robreno found, since “the largest division in terms of number of employees and net sales, has administrative offices and a manufacturing facility in Pennsylvania.”

Likewise, Robreno found that McNeil owns real estate in Pennsylvania worth more than $124 million, compared to New Jersey real estate valued at about $23 million. Additionally, the company’s “tangible property” in Pennsylvania is worth more than $217 million, compared to less than $40 million in New Jersey.

The two McNeil divisions located in Pennsylvania also accounted for about 63 percent of the company’s sales last year, Robreno found, while the two divisions located in New Jersey accounted for just 25 percent of the company’s net sales in 2003.

McNeil’s lawyers argued that Senior U.S. District Judge Clifford Scott Green already decided the question of McNeil’s principal place of business in his 1995 decision in Mears v. McNeil-PPC.

But Robreno found that while Green had held that McNeil’s principal place of business was New Jersey, the ruling was no longer good law because the facts have changed.

“Even under the relatively undeveloped record in that case, it seems clear that Mc-Neil-PPC’s corporate organization and geographic focus has changed significantly since Mears was decided over eight years ago.” Robreno wrote.

Refusing to rely on Mears, Robreno found that the issue of McNeil’s principal place of business “is a question of fact...that must be examined on a case-by-case basis.”

After applying the Kelly factors, Robreno concluded that McNeil had failed to satisfy its burden of showing that its day-to-day corporate activities and management decisions are not located in Pennsylvania.

“Because the defendant has failed to show that the plaintiffs and the defendant are citizens of different states, there is no diversity of citizenship. Therefore, this case must be remanded to the Philadelphia Court of Common Pleas,” Robreno wrote.