Source: https://www.bna.com/civil-conspiracy-parent-n17179891713/
Timestamp: 2019-04-22 16:22:39+00:00

Document:
David N. Anthony is a partner in the Richmond, Va., office of Troutman Sanders LLP, where he is the leader of the Financial Services Litigation section. He regularly handles business disputes in federal and state courts. Timothy J. St. George is an associate in the Richmond, Va., office of Troutman Sanders LLP. Prior to joining Troutman Sanders, Mr. St. George served as a judicial law clerk to the Hon. Robert E. Payne, U.S. District Court for the Eastern District of Virginia.
In the antitrust context, the U.S. Supreme Court has squarely held that “a parent corporation and its wholly owned subsidiary are incapable of conspiring with each other.”1 Most courts, however, have not faced the issue of whether this holding extends beyond the antitrust realm to bar civil conspiracy claims against parents and wholly owned subsidiaries in other statutory and common-law contexts. The federal and state courts in those states to have dealt with this issue are divided, with the majority of courts barring such claims.
This article articulates the reasoning behind these competing positions and provides an overview of the status of the issue nationwide. In so doing, the article will provide practitioners with a guide to determine whether such a claim is susceptible to a motion to dismiss in their jurisdiction; moreover, it will provide litigants with a better sense of the reasons why courts on both sides of the issue have reached their decisions, thereby giving rise to more persuasive advocacy.
• imbue too much substance into the corporate form.
Accordingly, the Supreme Court's rationale in both American Needle and Copperweld was undeniably tethered to antitrust concerns.
In Copperweld, the United States Supreme Court determined that a corporate parent could not, as a matter of law, conspire with a wholly owned subsidiary under Sherman Antitrust Act §1. Significantly, this holding was not based upon a broad, generally applicable examination of the nature of a “conspiracy.” Instead, the court focused on the proper meaning of a conspiracy in the context of the Sherman Antitrust Act.
These courts thus have deemed the decisions in Copperweld and American Needle to be simply inapplicable outside the antitrust context.
Furthermore, the courts adopting this position have set forth at least three policy reasons to support the contention that such a claim is a legal impossibility. First, the courts have held that recognizing such a claim would generate a substantial exception to the time-honored intracorporate immunity doctrine. This is due to the fact that “where the alleged harm and motives are mostly economic in nature and the overt acts primarily attributable to the wholly owned subsidiary, a civil conspiracy claim in almost all circumstances would also exist against the parent corporation.”11 Because of the close relationship that necessarily exists between a parent and its wholly owned subsidiary, permitting a claim for civil conspiracy in such a context could open the floodgates for claims against parent corporations, even when frivolous.
Second, permitting such a conspiracy claim would discourage corporate division and the valuable investment that frequently accompanies such division. The Supreme Court has cautioned that adopting a rule that harshly penalizes conduct “simply because a corporation delegated certain responsibilities to autonomous units might well discourage corporations from creating divisions with their presumed benefits.”12 Thus, needed investment in certain fields (e.g., healthcare) could be hindered due to the omnipresent prospect of a civil conspiracy claim as a result of the creation of wholly owned subsidiaries.
Third, these courts have held that permitting such a conspiracy claim to proceed would imbue too much substance into the corporate form. The incorporation of subsidiary entities is a technical process permitted under the laws of many states. The courts that have recognized the intracorporate immunity doctrine in the context of a parent and wholly owned subsidiary relationship have noted that the establishment of a wholly owned subsidiary is essentially a corporate formality.13 Thus, not wanting to elevate form over substance, these courts have barred such claims as a matter of law.
As noted above, most courts have not faced the issue of whether the Copperweld and American Needle holdings extend beyond the antitrust context to bar conspiracy claims against parents and wholly owned subsidiaries. However, the federal and state courts in those states that have dealt with this question of law outside the antitrust context are split. As set forth below, this issue has received consideration in published decisions out of Virginia, Nebraska, Kansas, Florida, Tennessee, Arkansas, Pennsylvania, California, Arizona, Delaware, New Jersey, New York, Texas, Washington, Wisconsin and Maryland.
The law on this issue is somewhat unclear in Arizona, Delaware, New Jersey, New Mexico, New York, Wisconsin and Maryland. In general, courts applying the laws of these states have declined to adopt a per se rule that a parent cannot conspire with its wholly owned subsidiary, but their decisions have been far from uniform.
The lone court to consider the issue in New Mexico determined that under the False Claims Act, a parent corporation and its wholly owned subsidiary were incapable of conspiring under the reasoning of Copperweld.22 No state court in New Mexico, however, has considered the issue.
New Jersey law also does not appear to foreclose the possibility of a conspiracy claim between parent and subsidiary corporations. The state courts of New Jersey have not yet had the opportunity to address the question, but a federal district court, applying New Jersey state law, granted a motion for summary judgment, dismissing a claim for conspiracy between a parent and a subsidiary for the plaintiff's failure to present any evidence of an agreement between the two entities.24 In Diaz, an employee sued his employer and the employer's parent corporation for a number of claims, including conspiracy to defraud.25 Looking beyond the pleadings, the federal court found that the employee failed to present evidence of an agreement between the employer and the employer's parent corporation.26 However, the court implicitly recognized that the cause of action existed, suggesting that the plaintiff could have proven its conspiracy claim if it could show evidence of an agreement.27 Furthermore, New Jersey often looks to Delaware for guidance when faced with unsettled issues in corporate law,28 and Delaware has seemingly adopted a case-by-case approach to this issue, focusing on the substance of the relationship between the entities.
In Wisconsin, the court in Ford Motor Co. v. Lyons, held that the Copperweld rule applies to a state statutory action for conspiracy to injure another's reputation, trade, business or profession because the economic policy underlying such an action is similar to the Sherman Act.32 Whether this holding would be extended to claims for civil conspiracy generally, however, is an open question.
The law in Texas on this issue also is not settled. The Supreme Court of Texas has not yet addressed this question, although it has cited Copperweld as authoritative in other contexts.35 Nevertheless, the majority of the Texas courts' opinions have distinguished Copperweld, interpreting the case as limited to the Sherman Act.36 The 14th District Court of Appeals is the only Texas court to apply the Copperweld holding to a common-law conspiracy claim.37 And, at least one federal district court in Texas has applied Copperweld to preclude a conspiracy claim under the False Claims Act.38 The issue thus remains undetermined in Texas, like elsewhere.
Courts across the country are sharply divided on the issue of whether a parent corporation is legally capable of conspiring with a wholly owned subsidiary. Moreover, the courts that have not adopted a bright-line rule generally take a functional approach, i.e., seeking to determine whether, notwithstanding their vertical corporate form, the parent and subsidiary corporation are truly acting in unison.
Advocates who are either challenging or defending such a claim should take care to marshal the language of the decisions in American Needle and Copperweld favoring their positions, as well as any precedent from within their jurisdictions addressing the issue. Lawyers also must be prepared to argue the divergent policy concerns mentioned above when the issue is not settled in the jurisdiction in which their case is pending. Due to the interest generated by the recent American Needle decision, it is inevitable that more courts will be forced to decide the issue. Therefore, thorough preparation and skillful advocacy are key, particularly when punitive damages have been claimed under such a theory and the stakes for the client are particularly high.
1 Am. Needle, Inc. v. NFL, 130 S. Ct. 2201, 2211 (2010) (citing Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752 (1984)).
2 Am. Needle, Inc., 130 S. Ct. at 2211 (citing Copperweld, 467 U.S. at 777).
3 See, e.g., ASARCO LLC v. Ams. Mining Corp., 382 B.R. 49, 79 (S.D. Tex. 2007) (collecting cases).
4 Shared Commc’ns. Servs. of 1800-80 JFKBlvd. v. Bell Atl. Props., 692 A.2d 570, 573 (Pa. Super. Ct. 1997) (internal citations omitted).
5 Id.; see, e.g., Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1036 (Del. 2007) (“I refuse to use this motion as a basis for holding that, as a per se matter, commonly-controlled or even owned business entities cannot conspire with one another and be held liable for acting in concert to pursue unlawful activity that causes damage … . This, of course, should be of little surprise given that our corporation law is largely built on the idea that the separate legal existence of corporate entities should be respected--even when those separate corporate entities are under common ownership and control.”); SEECO, Inc. v. Hales, 22 S.W.3d 157, 172 (Ark. 2000) (holding that Copperweld applies only in the area of antitrust and declining to extend intraenterprise holding to common-law conspiracy claim); MGW, Inc. v. Fredricks Dev. Corp., 1990 WL 272149, at *4 (Cal. Ct. App. Apr. 30, 1990) (distinguishing Copperweld from civil conspiracy, noting that in latter situation, focus is on whether individual has joined with another to perpetuate a wrong, as opposed to antitrust-specific issue of whether there is a combination of economic power); Grizzle v. Tex. Commerce Bank, N.A., 38 S.W.3d 265, 284 (Tex. App. 2001) (finding that Copperweld and its progeny are limited to the antitrust context); Shared Commc’ns. Servs. of 1800-80 JFK Blvd. Inc., 692 A.2d at 574 (recognizing parent and subsidiary as two separate entities where enterprise wanted to claim that its corporations were separate in some contexts, but when accused of conspiracy, argued that corporate forms were fictions).
6 See, e.g., Academy Plaza L.L.C.1 v. Bryant Asset Mgmt., No. 2774, 2006 Phila. Ct. Com. Pl. LEXIS 238, at *6 (June 9, 2006) (examining relationship between parent and subsidiary in assessing whether two corporations were sufficiently separate to form conspiracy); SEECO, Inc., 22 S.W.3d at 157 (holding that if parent and subsidiary were separate enough to contract with each other, then they were separate enough to form conspiracy).
7 SEECO, Inc., 22 S.W.3d at 157.
8 130 S. Ct. at 2211.
9 Copperweld, 467 U.S. at 771-72.
10 In re Ray Dobbins Lincoln-Mercury, Inc., 604 F. Supp. 203, 205 (W.D. Va. 1984).
11 Gov't Guar. Fund of Fin. v. Hyatt Corp., 955 F. Supp. 441, 457 (D.V.I. 1997).
12 Copperweld, 467 U.S. at 771.
13 See, e.g., Am. Needle, Inc., 130 S. Ct. at 2211 (“[A]lthough a parent corporation and its wholly owned subsidiary are 'separate’ for the purposes of incorporation or formal title, they are controlled by a single center of decisionmaking and they control a single aggregation of economic power.”); Advanced Health-Care Servs., 910 F.2d at 147 (rejecting conspiracy claim by refusing “to make corporate form determinative of liability”); Century Oil Tool, Inc. v. Prod. Specialties, Inc., 737 F.2d 1316, 1317 (5th Cir. 1984) (rejecting antitrust conspiracy claim by holding that there was “no relevant difference between a corporation wholly owned by another corporation, two corporations wholly owned by a third corporation or two corporations wholly owned by three persons who together manage all affairs of the two corporations”).
14 See, e.g., Scott & Stringfellow, LLC v. AIG Commercial Equip. Fin., Inc., 2011 U.S. Dist. LEXIS 38554, at *16 (E.D. Va. Apr. 8, 2011) (“[A] parent and wholly owned subsidiary, acting with identical ultimate interests and thus as a single economic unit, cannot conspire with each other to harm a third party's business interests.”); In re Ray Dobbins Lincoln-Mercury, Inc., 604 F. Supp. at 205 (denying conspiracy claim under VA. CODE §18.2-500); Derthick v. Bassett-Walker Inc., 904 F. Supp. 510, 525 (W.D. Va. 1995) (same); United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617, 651-52 (E.D. Va. 2005), rev'd on other grounds, 562 F.3d 295 (4th Cir. 2009) (dismissing conspiracy claim under the False Claims Act); Saliba v. Exxon Corp., 865 F. Supp. 306, 313 (W.D. Va. 1994); Zimpel v. LVI Energy Recovery Corp., 23 Va. Cir. 423, 423-24 (Fairfax Cnty. 1991) (“LVI Energy is in essence a wholly-owned subsidiary of LVI Group, and the two are incapable of conspiring under Code §18.2-499.”). But seeGlasson v. Children's Surgical Specialty Grp., Inc., 73 Va. Cir. 480, 481 (Norfolk 2007) (“There is no such practical necessity that requires a corporation to act through a parent or subsidiary. The incorporators of the three corporations involved here chose for some reason to create separate entities. They believed there was some advantage in the arrangement. They ought not be allowed to ask the court to ignore what they have created when it suits their convenience.”).
15 See Nebraska Sec. Bank v. Dain Bosworth Inc., 838 F. Supp. 1362, 1371-72 (D. Neb. 1993) (relying on Copperweld in holding that parent and its wholly owned subsidiary cannot have conspired for RICO purposes); Pizza Mgmt., Inc. v. Pizza Hut, Inc., 737 F. Supp. 1154, 1165-66 (D. Kan. 1990) (extending Copperweld to bar civil conspiracy claim against parent and its subsidiary); Highland Rests. v. Judy's Foods, 1990 U.S. Dist. LEXIS 8121, at *15 (D. Kan. June 26, 1990) (noting that Copperweld is a Sherman Act case, but nevertheless using Copperweld rationale to bar common-law conspiracy claim); Bryant Heating and Air Conditioning Corp., 597 F. Supp. 1045, 1054 (S.D. Fla. 1984) (finding that Florida law does not recognize conspiracy between members of single economic unit, such as parent and its wholly owned subsidiary); Trau-Med of Am. Inc. v. Allstate, 71 S.W.3d 691 (Tenn. 2002) (citing Copperweld in acknowledging that wholly intracorporate conduct does not satisfy plurality requirement to allege conspiracy); Laxalt v. McClatchy, 622 F. Supp. 737, 745-46 (D. Nev. 1985) (finding that wholly owned subsidiaries have no separate legal existence for civil conspiracy claims); Corbit v. J. I. Case Co., 424 P.2d 290, 295 n.3 (Wash. 1967) (“We preclude the possibility of establishing a conspiracy between a parent corporation and its wholly-controlled subsidiary.”); Tate v. Sallie Mae, Inc., No. 3:10-cv-00386, 2011 BL 215518, at *3 (W.D.N.C. Aug. 19, 2011) (“[A] corporation and its wholly-owned subsidiaries are incapable of conspiring together. Similarly, a corporation and its wholly owned subsidiary cannot conspire for the purposes of civil conspiracy to commit unlawful acts.”).
16 See generally SEECO, Inc. v. Hales, 22 S.W.3d 157, 172 (Ark. 2000) (stating that Copperweld applies in area of antitrust litigation and declining to extend the holding to common-law conspiracy claims); Shared Commc'ns Servs of 1800-80 JFK Blvd. Inc. v. Bell Atlantic Props., Inc., 692 A.2d 570, 572-74 (Pa. 1997) (refusing to extend Copperweld and disregard corporate form in common-law civil conspiracy context); MGW, Inc. v. Fredricks Dev. Corp., 1990 WL 272149, at *4 (Cal. Ct. App. Apr. 30, 1990) (distinguishing Copperweld from civil conspiracy actions, noting that in latter situation, focus is on whether individual has joined with another to perpetuate wrong as opposed to whether there is combination of economic power).
17 See 1800-80 JFK Blvd. Inc., 692 A.2d at 574 (recognizing parent and subsidiary as two separate entities where enterprise wanted to claim that its corporations were separate in some contexts, but when accused of conspiracy, argued that corporate forms were merely fictions); Academy Plaza L.L.C.1 v. Bryant Asset Mgmt., No. 2774, 2006 Phila. Ct. Com. Pl. LEXIS 238 (Pa. Comm. Pl. June 9, 2006) (looking at closeness of relationship between parent and subsidiary in determining whether two corporations are sufficiently separate to form conspiracy); SEECO, Inc., 22 S.W.3d at 157 (reasoning that if parent and subsidiary were separate enough to contract with each, they were separate enough to form conspiracy).
18 ASARCO LLC, 382 B.R. at 79.
19 In re TransAmerica Airlines, Inc., No. 1039-N, 2006 BL 30729, at *7 (Del. Ch. Feb. 28, 2006); see alsoCornell Glasow, LLC v. LA Grange Props., LLC, 2012 Del. Super. LEXIS 266, at *37 (June 1, 2012) (reaffirming proposition that corporation cannot conspire with wholly owned subsidiary, officer or agent); In re Asbestos Litig., 509 A.2d 1116 (Del. Super. Ct. 1986) (citing Copperweld as authority for holding that parent corporation cannot conspire with its subsidiary for purposes of civil conspiracy liability), aff'd, 525 A.2d 146 (Del. 1987).
20 Allied Capital Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1036 (Del. Ch. 2007).
22 United States ex rel. Krohn v. Sun West Servs., 2000 U.S. Dist. LEXIS 17193, at *15-17 (D.N.M. Apr. 11, 2000).
23 See Wuliger v. Swiss Re Life & Health Am., Inc., No. 3:07-cv-00270, 2011 BL 45071, at *5 (N.D. Ohio Feb. 22, 2011) (“[U]nder Ohio law, the key trait for the unity of action required to defeat a conspiracy under the doctrine is not being a subsidiary, but being an agent. Neither side has alleged that Southwestern, Reassure, or Valley Forge acted as agents of Swiss Re in the conspiracy Plaintiff alleges … . Because no party has claimed that Southwestern, Reassure, or Valley Forge acted as agents of Swiss Re with regard to the conspiracy proposed in Count I, the Court will dismiss no portion of the Count under Defendants' so-called 'intra-corporate conspiracy’ doctrine.”). But seeW. & S. Life Ins. Co. v. Countrywide Fin. Corp. (In re Countrywide Fin. Corp. Mortgage-Backed Sec. Litig.), 2012 U.S. Dist. LEXIS 184429, at *46 (C.D. Cal. June 29, 2012) (applying Ohio state law and holding that “[t]he logic of Copperwelddoes not apply only to antitrust, but rather any cause of action that requires a 'combination.’”).
24 Diaz v. Johnson Matthey, Inc., 869 F. Supp. 1155, 1168 (D.N.J. 1994).
28 E.g., In the Matter of Prudential Ins. Co. Derivative Litig., 282 N.J. Super. 256, 659 A.2d 961, 969 (N.J. Super. Ct. Ch. Div. 1995).
29 6 N.Y.2d 301, 305 (N.Y. 1959).
30 Borden, Inc. v. Spoor Behrins Campbell & Young, Inc., 828 F. Supp. 216, 223 (S.D.N.Y. 1993).
32 137 Wis. 2d 397, 429 (1987).
33 No. MJG-13-1243, 2014 BL 14277, at *6 (D. Md. Jan. 17, 2014).
35 E.g., Holloway v. Skinner, 898 S.W.2d 793 (Tex. 1995); Maxey v. Citizens Nat’l Bank, 507 S.W.2d 722 (Tex. 1974).
36 Grizzle v. Tex. Commerce Bank, N.A., 38 S.W.3d 265, 284 (Tex. App. 2001); Atl. Richfield Co. v. Long Trusts, 860 S.W.2d 439, 447 (Tex. App. 1993); Metro. Life Ins. Co. v. La Mansion Hotels, 762 S.W.2d 646, 651-52 (Tex. App. 1988).
37 Atl. Richfield Co. v. Misty Prods., Inc., 820 S.W.2d 414, 420 (Tex. App. 1991) (stating that parent cannot conspire with its wholly owned subsidiary as matter of law).
38 United States ex rel. Reagan v. E. Tex. Med. Ctr. Reg’l Healthcare Sys. , 274 F. Supp. 2d 824, 860 (S.D. Tex. 2002) (“[S]he has not alleged that two or more unrelated corporate entities entered into an agreement to commit fraud, and so she has not stated a claim for which relief can be granted under the Act.”).

References: §1
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 §18
 v. 
 v. 
 v. 
 v. 
 §18
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.