Rethinking Limited Liability of Parent Corporations for Foreign Subsidiaries’ Violations of International Human Rights Law

Table of ContentsI. Introduction 1772II. An Overview of Limited Liability 1787A. History of Corporations 1787B. Origin of Limited Liability 1790C. The Growth of Transnational Corporations Has Not Affected Limited Liability of Parent Corporations 1794D. Piercing the Corporate Veil Is Difficult 1796III. Host Countries Where Foreign Subsidiaries Operate Often Fail to Provide Adequate Remedies for Victims 1799A. Limited Liability Has Prevented Victims of Foreign Subsidiaries' Violations of Human Rights Norms from Seeking and Obtaining a Remedy When Unable to Do So in Host Country... 1803IV. Normative Arguments for Corporate Parent Liability 1806A. Parent Corporations Obtain Numerous Benefits from Subsidiaries' Operations While Shifting the Risks to Non-Consenting Third Parties 1807B. The Greater the Harm, the Greater the Argument for Holding Parents Liable: How Much Harm Should Be Required to Hold Parent Corporations Liable? 1811C. Precedent Where Normative Arguments Have Led to Statutory Enactments 1813V. United Nations Guiding Principles on Business and Human Rights 1815VI. Approaches to Holding Corporate Parents Liable for Foreign Subsidiaries' Human Rights Violations 1819A. Enterprise Liability 18191. Why Enterprise Liability Is Not the Best Approach 1822B. The Due Diligence Approach 18251. France and Switzerland Are Moving Toward Holding Parent Corporations Liable for the Acts of Their Subsidiaries Where They Fail to Engage in Due Diligence 18262. Limitations of the Due Diligence Approach 1829C. Parent Corporation Duty-of-Care Approach 18311. The UK and Canadian Cases Regarding Corporate Parental Duty of Care 18322. A New, More Expansive Tort-Based Corporate Parental Duty-of-Care Approach 18383. Limitations of the Tort-Based Corporate Parental Duty-of-Care Approach 1840VII. Recommended Approach to Overcoming Limited Liability of Parent Corporations for Foreign Subsidiaries' Human Rights Violations 1848A. Statutory Enactment Providing for Corporate Parental Liability for Foreign Subsidiaries' Violations of Human Rights Norms in "At-Risk" Countries Where Victims Cannot Otherwise Obtain a Remedy 1848B. Assigning Liability Without Fault is Not New 1853C. Examples of Where Congress Has Overcome Limited Liability by Statute 1854D. Foreign Policy and Comity Concerns Can be Overcome 1860IX. Conclusion 1862I. IntroductionThe doctrine of limited liability of shareholders, which prevents shareholders of a corporation from being financially liable to victims for the actions and debts of that corporation beyond the level of their investment,1 is deeply ingrained into the law of the United States,2 as well as many other countries.3 After states began allowing corporations to own shares of other corporations in the 1880s, the doctrine of limited liability began applying to parent corporations, as shareholders, for acts of their subsidiaries.4 Thus, the doctrine limits liability of corporate parents as well as individual shareholders.5 Of course, in limited situations where a parent is shown to control the subsidiary to the extent that the subsidiary is a mere alter ego of the parent and the parent uses the subsidiary for some wrongful purpose, the protection of limited liability can be removed-an act referred to as "piercing the corporate veil."6 Where a plaintiff does not succeed in piercing the veil, or cannot otherwise establish that the parent is directly liable to third persons harmed through the parent's own actions or through the use of the subsidiary as an agent to carry out its own policies or decisions,7 the principle is that a parent corporation will not be held liable to victims for the acts of its subsidiary, no matter how egregious.8With regard to business-related human rights and environmental abuses, such limits on parent liability for a subsidiary's illegal and harmful actions are not problematic as long as victims can identify the subsidiary causing the harm and can obtain a remedy in the country where the subsidiary is located and operates (host country). …