Opinion ID: 1694089
Heading Depth: 1
Heading Rank: 3

Heading: Liability for compensatory damages

Text: The mere fact that ALSA is the ultimate parent corporation of ALAC, albeit through four corporate levels of ownership, does not result in the imposition of a duty upon ALSA to provide the employees of ALAC with a safe place to work. The law has long been clear that a corporation is a legal entity distinct from its shareholders and the shareholders of a corporation organized after January 1, 1929 shall not be personally liable for any debt or liability of the corporation. Buckeye Cotton Oil Co. v. Amrhein, 168 La. 139, 121 So. 602 (1929); La. R.S. 12:93(B). The same principle applies where one corporation wholly owns another. See Joiner v. Ryder System Inc., 966 F.Supp. 1478, 1483 (C.D.Ill.1996). While generally a parent corporation, by virtue of its ownership interest, has the right, power, and ability to control its subsidiary, a parent corporation generally has no duty to control the actions of its subsidiary and thus no liability for a failure to control the actions of its subsidiary. See Joiner, supra at 1489-90 and cases cited therein. [15] The fundamental purpose of the corporate form is to promote capital by enabling investors to make capital contributions to corporations while insulating separate corporate and personal asset from the risks inherent in business. Smith v. Cotton's Fleet Serv., Inc., 500 So.2d 759, 762 (La.1987); Glazer v. Commission on Ethics for Public Employees, 431 So.2d 752, 757 (La.1983). Louisiana courts have declared that the strong policy of Louisiana is to favor the recognition of the corporation's separate existence, so that veil-piercing is an extraordinary remedy, to be granted only rarely. Glenn G. Morris and Wendell H. Holmes, Louisiana Civil Law Treatise, Vol. 8, Business Organizations (1999),  32.02, p. 55 (cites omitted). If the plaintiffs do not allege shareholder fraud, they bear a `heavy burden' of proving that the shareholders disregarded corporate formalities to the extent that the corporation had become indistinguishable from them. Id. (Cites omitted). In this case, plaintiffs do not seek to pierce the corporate veil in order to impose liability upon ALSA. Instead, plaintiffs advocate a departure from this established, though extraordinary, exception to limited shareholder liability and assert instead that ALSA breached a duty it voluntarily undertook, that is to provide its subsidiaries with safety requirements based upon its own specialized and highly-developed knowledge about the need for barrier walls around manual oxygen valves, and then failed to enforce these requirements at ALAC. According to the jury interrogatories, the jury found that ALSA assumed a duty for safety at ALAC's Plaquemine Air Separation Plant. The court of appeal affirmed the jury's determination that ALSA had assumed a duty for safety at the plant by applying the Good Samaritan Doctrine found in Section 324A of the Restatement (Second) of Torts to the facts of this case. [16]  324A provides as follows: One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect [perform] his undertaking, if (a) his failure to exercise reasonable care increases the risk of harm, or (b) he has undertaken to perform a duty owed by the other to the third person, or (c) the harm is suffered because of reliance of the other or the third person upon the undertaking. This common law doctrine has existed for centuries and has traditionally been used to impose liability upon an actor who has failed to exercise reasonable care when it undertook to perform a duty owed to a third party. See Annette T. Crawley, Environmental Auditing and the Good Samaritan Doctrine: Implications for Parent Corporations, 28 G.L.Rev. 223, 234 (1993) (Recognition of the Good Samaritan doctrine as an exception to the traditional restriction of liability traces its origin to the seminal eighteenth century case of Coggs v. Bernard,  92 Eng. Rep. 107 (K.B.1703) (citations omitted)). However, in recent years, employees of subsidiary corporations have begun to employ the doctrine to establish the tort liability of a parent corporation as an alternative to piercing the corporate veil. While this Court has twice cited  324A to hold that, where a duty to protect others against criminal misconduct has been assumed, liability may be created by a negligent breach of that duty, see Mundy v. Department of Health and Human Resources, 620 So.2d 811 (La.1993) and Harris v. Pizza Hut of Louisiana, Inc., 455 So.2d 1364 (La.1984), we have never discussed whether such a cause of action is available in the parent-subsidiary context under Louisiana law, or analyzed the elements required to set forth a cause of action against a parent corporation under  324A. It is clear that a parent corporation, just like any other person or entity, can be held liable for its own direct acts of negligence. Further, under Louisiana jurisprudence, parties who voluntarily assume certain duties for workplace safety must perform those duties in a reasonable and prudent manner. See, e.g., Moore v. Safeway, Inc., 95-1552 (La.App. 1 Cir. 11/22/96), 700 So.2d 831, writs denied, 97-2921, 97-3000 (La.2/6/98), 709 So.2d 735, 740 (holding that Shell Chemical, a plant premises owner, assumed and violated a duty to protect an employee of one of its independent contractors); Crane v. Exxon Corp., 613 So.2d 214 (La.App. 1 Cir.1992) (holding that Exxon, through its field contract coordinator, assumed a duty of care to an employee of one of its contractors). This Court has decided numerous cases by applying this voluntary assumption of duty doctrine as a basis for the existence of a duty of reasonable care, though it has only cited  324A in two of them, Harris, supra, and Mundy, supra . [17] However, we do not believe it to be contrary to Louisiana law to discuss the principles established in  324A in the parent-subsidiary context for the following reasons: (1) a parent corporation can be held liable just as any other entity or person for its own acts of negligence independent of the parent-subsidiary relationship and can voluntarily assume a duty not otherwise owed; (2) this Court has previously referred to  324A in negligence cases; and (3) courts throughout the country are applying this doctrine in the parent-subsidiary context. The plain language of the introductory portion of  324A establishes that an assumption of duty arises when the defendant (1) undertakes to render services, (2) to another, (3) which the defendant should recognize as necessary for the protection of a third person. Even if a plaintiff proves the assumption of a duty under that standard and that the defendant failed to exercise reasonable care to perform this undertaking, he can only recover if he further proves that either (a) the defendant's failure to exercise reasonable care increased the risk of such harm; or (b) the defendant has undertaken to perform a duty owed by the employer to the injured employee; or (c) harm is suffered because of reliance of the employer or the injured employee upon the undertaking. Tillman v. Travelers Indemnity Co., 506 F.2d 917 (5th Cir.1975). [18] In order to consider whether plaintiffs met the burden of proof set out in  324A, we must first determine whether ALSA undertook to render services for ALAC which ALSA should have recognized was necessary for the protection of ALAC's employees, i.e., whether ALSA undertook to provide a safe work place for ALAC's employees. Whether a duty is owed is a question of law. Faucheaux v. Terrebonne Consolidated Government, 92-0930 (La.2/22/93), 615 So.2d 289. The court of appeal cites Schulker v. Roberson, 91-1228 (La.App. 3 Cir. 6/5/96), 676 So.2d 684, 688 for the proposition that whether ALSA assumed a duty to the injured employees at the Plaquemine plant is a factual question to be determined by the fact finder and thus subject to the manifest error rule. 833 So.2d at 959. However, the manifest error rule assumes that the trier of fact applied the correct law in reaching its conclusion. Frank L. Maraist and Harry T. Lemmon, Louisiana Civil Law Treatise, Vol. 1, Civil Procedure,  14.14, p. 395 (1999). If the trier of fact applied the incorrect law because of erroneous and prejudicial jury instructions ... and if the appellate court determines the error could have affected the outcome below, the manifest error rule does not apply, and the appellate court makes an independent determination of the facts from the record on appeal. Id., at pp. 395-96; Gonzales v. Xerox Corp., 320 So.2d 163 (La.1975). In this case, the jury could not have applied the correct law in determining whether ALSA assumed a duty to the employees at ALAC's plant because it was given no instructions whatsoever on the law of assumption of duty or any of the elements required under  324A. [19] As this obviously could have affected the outcome, we will review the issue of whether ALSA assumed a duty for safety at ALAC's plant pursuant to  324A under the de novo standard of review. [20] See, e.g., Torrington Co. v. Stutzman, 46 S.W.3d 829 (Tex.12/21/00) (reversing judgment of trial court in favor of plaintiffs against successor corporation and remanding case where broad form negligence charge the trial court submitted to the jury omitted the elements necessary to impose liability upon the successor under a negligent undertaking theory under  324A). Nevertheless, as the rest of this opinion demonstrates, even if we were to review this case under the manifest error standard, our result would be the same. In determining whether a parent corporation affirmatively undertook the duty of safety owed by its subsidiary, courts have looked to the scope of the parent's involvement, the extent of the parent's authority, and the underlying intent of the parent to determine whether the parent corporation affirmatively undertook the duty owed by the subsidiary. Annette T. Crawley, Environmental Auditing and the Good Samaritan Doctrine: Implications for Parent Corporations, 28 Ga. L.Rev. 223, 243 (1993). In Muniz v. National Can Corp., 737 F.2d 145 (1st Cir.1984), a seminal case on this issue, the parent corporation's involvement with industrial safety at its subsidiary's plant included the issuance of general safety guidelines which the parent intended would be implemented by local management and the provision of assistance with safety matters upon request by a subsidiary's local management. The plaintiff maintained that the parent's involvement in safety matters at the subsidiary corporation imposed an independent duty on the parent to provide a safe working environment for the plaintiff and that the parent breached this duty by failing to correct the faulty industrial safety system at the subsidiary's plant. The court held, as a matter of law, that the parent's actions were not undertakings sufficient to impose a duty under  324A: Because an employer has a non-delegable duty to provide safe working conditions for its employees, we do not lightly assume that a parent corporation has agreed to accept this responsibility. Neither mere concern with nor minimal contact about safety matters creates a duty to ensure a safe working environment for employees of a subsidiary corporation. To establish such a duty, the subsidiary's employee must show some proof of a positive undertaking by the parent corporation. 737 F.2d at 148. Muniz holds that [a] parent corporation may be liable for unsafe conditions at a subsidiary only if it assumes a duty to act by affirmatively undertaking to provide a safe working environment. Id. Communication or concern over safety matters is not enough. Id. In reaching this determination, the Muniz court relied on other cases involving the liability of a parent corporation under  324A for unsafe working conditions at its subsidiary's plant: An employer has a nondelegable duty to provide for the safety of its employees in the work environment. See Love v. Flour Mills of America, 647 F.2d 1058, 1063 (10th Cir.1981). The parent-shareholder is not responsible for the working conditions of its subsidiary's employees merely on the basis of parent-subsidiary relationship. [21] Id; see also Heinrich v. Goodyear Tire & Rubber Co., 532 F.Supp. 1348, 1354-56 (D.Md.1982); Rick v. RLC Corp., 535 F.Supp. 39, 42-43 (E.D.Mich.1981). A parent corporation may be liable for unsafe conditions at a subsidiary only if it assumes a duty to act by affirmatively undertaking to provide a safe working environment at the subsidiary. Love, [supra ]; see also Treece & Zuckerman, A Parent Corporation's Liability for the Torts of its Subsidiary in the Context of Exclusive Remedy Provision of the Workers' Compensation Laws, 50 Ins. Counsel J. 609, 613-15 (1983). Such an undertaking may be express, as by contract between the parent and the subsidiary, or it may be implicit in the conduct of the parent. Id. [22] Under the Muniz standard, other courts have held that it is not proof of an affirmative undertaking to show merely that a parent: (1) hired the safety director to work for the subsidiary; [23] (2) assisted a subsidiary in evaluating and inspecting the safety conditions at the subsidiary's plant; [24] or (3) conducted a negligent inspection. [25] In this case, there is no question that ALAC, as plaintiffs' employer, was under a statutory duty to provide its employees with a reasonably safe place to work. [26] Further, as a matter of general corporate law, ALSA had no duty as a parent corporation to control the activities of any of its subsidiaries, to insure that its subsidiaries were complying with their duty to provide a reasonably safe place to work, nor any independent duty to notify its subsidiaries of any safety recommendations. [27] Because of these well-established legal rules by which employers and corporations are governed, we will not lightly assume that a parent corporation has agreed to accept the subsidiary-employer's duty to provide a safe workplace absent proof of an affirmative undertaking of that duty by the parent corporation. As the above cited cases hold, neither a parent's concern with safety conditions and its general communications with the subsidiary regarding safety matters, nor its superior knowledge and expertise regarding safety issues, will create in the parent corporation a duty to guarantee a safe working environment for its subsidiary's employees under  324A. In this case, the evidence presented did not establish that ALSA affirmatively undertook to provide ALAC's employees with a reasonably safe place to work under  324A, with regard to the entire plant or with regard to providing barrier walls around oxygen valves. The only evidence presented at this trial that ALSA undertook to issue safety requirements concerning barrier walls to its subsidiaries was the one sentence relied on by the court of appeal from the English translation of TI 84, i.e., that IT 84 sets the minimum requirements to be met throughout the AL Group as regards oxygen pipeline networks. However, not a single witness testified that the provisions of TI 84 were, in fact, mandatory guidelines that ALSA subsidiaries had to follow. To the contrary, every single witness with knowledge of the document, including the person who drafted the document, testified that the provisions of TI 84 were merely safety recommendations and that each subsidiary could chose to follow or not, depending on many factors relevant to each plant. The witnesses explained why it would be impossible to impose the same safety factors upon each of its more than 100 subsidiaries in over 60 countries, based on the different local rules and practices, types of equipment used, varying statutory requirements, and numerous other factors. Likewise, the court of appeal's reasoning would mean that by virtue of issuing TI 84, ALSA undertook the duty of safety owed by each of its subsidiaries at hundreds of plants in over 60 countries. Secondly, the evidence was uncontroverted that when ALSA sent TI 84 to its subsidiaries in 1984, the Plaquemine plant was owned by Big Three and therefore ALSA did not send TI 84 to Big Three as it was not then an ALSA subsidiary. There was no evidence that ALSA ever distributed TI 84 to ALAC when it began ownership and operation of the plant, or at any time. In spite of this, the court of appeal held ALSA liable for undertaking to impose safety requirements upon ALAC but then failing to do so, i.e. affirmatively undertaking to provide safety requirements that it never provided to ALAC. A failure to impose safety recommendations that it never even sent to a subsidiary can hardly be characterized as an affirmative undertaking. Further, the fact that ALSA sent TI 84 to other subsidiaries and not ALAC does not establish an affirmative duty to send it to all its subsidiaries as parent corporations do not have a duty to treat all subsidiaries equally. The witnesses testified that when ALSA purchased Big Three, an American company, they chose to rely on Big Three's expertise in safety matters and did not intercede in any way into Big Three's duty to provide a safe workplace for its employees. Big Three had an excellent safety record, was complying with CGA standards, and was a leader in the United States in this industry. Thus, plaintiffs did not prove that by sending TI 84 to its subsidiaries, it affirmatively undertook to send TI 84 to ALAC, such that its failure to do so breached its assumed duty to provide a safe working environment at the ALAC plant. Further, the language of TI 84 does not require the use of barrier walls around the valves involved, even if the issuance of TI 84 could be considered an affirmative undertaking to provide mandatory safety requirements. TI 84 explains that, while ASLA called for the use of a sophisticated system of walls forming protective walls and screens following a series of accidents in the 1960s and 70s, today, less stringent solutions are possible because of experience acquired since that time, installation procedures ensuring high quality clean installations and analysis of the accidents since 1970 when the protective wall system was introduced. This clearly indicates solutions other than protective walls and screens were then considered safe and acceptable. The next sentence of TI 84 provides that for new installations which are up to standard, the only requirement is that operating personnel should be protected during manual opening or closing of gate valves ... under certain circumstances by a protective wall between the gate valve and the handwheel. As seen by the evidence presented, the valve where the flash fire occurred was an automatic valve, which was ordinarily operated through the use of remote control and which was not normally worked on while under pressure. While there was no barrier wall between the manual valve that Bujol and Perkins first attempted to close and the handwheel that they turned two times in an attempt to close it, the manual valve is not the valve that exploded and caused their injuries. TI 84 did not even suggest that a wall be placed around automatic valves. The witnesses testified about the drawbacks that would entail if a wall were placed around an automatic valve, i.e., the automatic valve could not be viewed from the control room where it was operated remotely. [28] Further, because by definition an automatic valve is not opened or closed manually, a wall would have prevented the workers from determining what was wrong with the automatic valve and they would have had to go around the wall in order to do so had one been there. TI 84 did provide however that [t]he question of regular maintenance checks carried out with the pipeline still pressurized must be examined and strict procedural guidelines laid down. Accordingly, it was ALAC, not ALSA, that had safety procedures in place in order for work to be performed on an automatic valve under pressure. Finally, the provisions of TI84 recognized that local rules in force, in this case the CGA which did not require barrier walls, might conflict with the provisions of TI84 (requiring barrier walls) and that in such case, the Direction Technique may be consulted to decide on the attitude to adopt. (Emphasis added.) This reaffirms the witnesses' testimony that the provisions of TI84 regarding barrier walls were not mandates, but merely recommendations that may or not be applicable depending on the circumstances of each plant, and that ALSA was available to offer advice if requested by a subsidiary. However, even if TI 84 were considered an undertaking on the part of ALSA to provide ALAC's employees with a safe place to work, plaintiffs still cannot prevail in this case. For even proof of an affirmative undertaking to assume a duty of safety owed by the subsidiary is not enough to impose liability on a parent for its breach, as liability can only be imposed under  324A if one of the requirements of  324A(a)-(c) are also met. Under  324A(a), a plaintiff must prove that the parent's breach of its assumed duty resulted in an increased risk of harm. This section requires some change in conditions that increases the risk of harm to the plaintiff over the level of risk that existed before the defendant became involved. Canipe v. Nat'l Loss Control Serv., 736 F.2d 1055, 1062 (5th Cir.1984). The comments to  324A(a) reveal that increased risk means some physical change to the environment or some other material alteration of circumstances. Patentas v. U.S., 687 F.2d 707, 717 (3rd Cir.1982). ALSA's failure to send TI 84 to ALAC and subsequent failure to compel ALAC to erect barrier walls did not increase the risk of harm to plaintiffs as required by  324A(a), as the lack of barrier walls existed many years before ALSA ever became involved with ALAC, and there was no physical change to the environment or some other material alteration of circumstances resulting from the lack of barrier walls. [29] Under  324A(b), a plaintiff must show that the parent undertook to perform a duty owed by the subsidiary to the plaintiff. This is a more stringent requirement than the positive undertaking requirement of the introductory paragraph. The majority of cases that have held that a parent, or other entity, will only be liable for a voluntary assumption of duty under  324A(b) where that corporation's undertaking was intended to supplant, not just supplement, the subsidiary's duty. See e.g., Heinrich, supra (Liability under section 324A(b) arises in the workplace setting only if the actor's undertaking was intended to be in lieu of, rather than as a supplement to, the employer's own duty of care to the employee) (citing Davis, supra; Stacy v. Aetna Casualty & Surety Co., 484 F.2d 289, 294 (5th Cir.1973); Blessing v. U.S., 447 F.Supp. 1160, 1193-95 (E.D.Pa.1978)); cf. Boggs v. Blue Diamond Coal Co., 590 F.2d 655, 663 (6th Cir.), cert. denied, 444 U.S. 836, 100 S.Ct. 71, 62 L.Ed.2d 47 (1979) (parent liable in tort because it had negligently undertaken to design and install a ventilation system at subsidiary's mine that caused the death of fifteen miners because the parent had the primary responsibility for the safety program in the mine); In re Norwest Bank Fire Cases, 410 N.W.2d 875 (Minn. Ct.App.1987). [30] This requirement is especially compelling in the parent-subsidiary context where the subsidiary is an employer required by law to provide its employees with a reasonably safe workplace. In this case, there was no evidence presented that would indicate that ALSA intended to supplant ALAC's duty to provide its employees with a reasonably safe place to work, with regard to the entire plant or the specific valves and pipelines at issue. To the contrary, ALAC retained the final responsibility for fulfilling its duty of safety in that it had its own safety management in place and its own safety rules, ALSA exercised no authority to compel ALAC to comply with the guidelines of TI 84 and never sought to do so, leaving it up to each subsidiary to manage its own plant. In addition, ALSA never audited nor inspected the ALAC plant or the valve that exploded in this case and never even made any safety recommendations specific to this plant at all. Finally,  324A(c) requires that the harm was suffered because of reliance by the plaintiff or the subsidiary on the parent's undertaking to provide for safety at the subsidiary's plant. See Johnson v. Abbe Engineering Co., 749 F.2d 1131, 1133 (5th Cir.1984) (subsidiary's plant manager testified that he relied on parent for accident prevention and safety training, thus meeting the requirements of  324A(c)); see also Gaines v. Excel Industries, Inc., 667 F.Supp. 569 (M.D.Tenn. 1987) (summary judgment reversed for failure to rebut assertions of reliance on parent's safety inspections). Plaintiffs cannot prevail under  324A(c) as no evidence was presented to prove reliance by ALAC or plaintiffs on ALSA's alleged undertaking. In fact, the evidence presented proved just the opposite, that ALSA relied solely on Big Three and subsequently ALAC to provide for safety at its own plant. ALAC certainly did not rely on ALSA's guidelines, nor did they rely on ALSA, based on ALSA's expertise and experience in the industry, to provide them with any safety advice relative to the safety of the valves at issue or any other aspect of plant safety. [31] After careful review of the record, we find that the evidence presented does not establish, under the  324A of the Restatement (Second) of Torts, that ALSA affirmatively undertook to provide ALAC's employees with a reasonably safe place to work, with regard to either the entire plant or the valves and pipelines at issue, and that either (a) ALSA's failure to exercise reasonable care increased the risk of harm; or (b) ALSA's undertaking was intended to supplant ALAC's duty to provide its employees with a reasonably safe place to work; or (c) the accident occurred because of reliance by ALAC or the injured employees upon the undertaking. Accordingly, we reverse the jury's award of compensatory damages in favor of plaintiffs.