Opinion ID: 3156371
Heading Depth: 3
Heading Rank: 2

Heading: Centralization of Management

Text: ¶ 24. Under the Department’s regulations centralized management is evidenced by centralized policymaking in areas such as “purchasing, accounting, finance, tax compliance, legal services, human resources, health and retirement plans, product lines, capital investment and marketing.” Unitary Combined Reporting § 6(c)(3). Further the Supreme Court has explained that while it is important to assess the degree to which the parent is involved in the subsidiary’s 11 day-to-day operations, the key question is “whether the management role that the parent does play is grounded in its own operational expertise and its overall operational strategy.” Container Corp., 463 U.S. at 180 n.19. ¶ 25. The Department presented evidence to show that AIG had control over MMC’s management. One of AIG’s witnesses described how MMC was acquired by AIG’s former CEO as “a toy or a hobby.” AIG as the sole shareholder of MMC appointed the MMC board members. AIG appointed MMC’s CEO, and MMC’s CFO. Two of MMC’s six directors were AIG officers—the Senior Vice President of the Investments and Financial Services division of AIG, and the Vice President for AIG Real Estate Investments division of AIG. Neither individual was, however, on the Board of Directors of AIG or any AIG affiliate. In addition, those two board members were not officers of MMC. None of MMC’s officers in 2006 was a current or former employee of AIG or an AIG affiliate. ¶ 26. MMC did not have common purchasing, advertising, or marketing with AIG. MMC had its own office space and facilities. MMC had its own computer systems and accounting staff and retained its own legal counsel. MMC had separate human resources personnel. AIG provided some services to MMC, such as offering MMC employees access to its life-insurance and ERISA-related benefits, but the evidence indicated MMC paid arm’s-length prices for these services. ¶ 27. Based on this evidence, the Commissioner determined that AIG provided “financial and asset management expertise and various corporate services, including life insurance and retirement benefits, tax, financial, regulatory, accounting, and other centralized corporate services.” The Commissioner correctly focused on the level of control that AIG asserted over MMC’s operations. In this regard, it is significant that AIG appointed MMC’s board of directors and its CEO and CFO. But, none of MMC’s officers were officers of AIG or an AIG affiliate, and the U.S. Supreme Court has found a lack of centralized management when there was no 12 overlap in officers between entities. See F.W. Woolworth, 458 U.S. at 366 n.15 (concluding operations not unitary where none of subsidiaries’ officers were current or former employees of parent). ¶ 28. Further, the evidence failed to show that AIG’s control over appointments to MMC’s board and management manifested in actual control over MMC’s operations. See Container Corp., 463 U.S. at 180 n.19 (explaining that critical part of test is not potential for control, but actual integration and operational control). MMC had its own offices and employees, and control over its staff. Most importantly, AIG and the AIG executives on MMC’s board did not contribute any operational expertise to assist MMC or set MMC’s overall strategy. MMC made its own operating decisions. See ASARCO, 458 U.S. at 323-25 (explaining that operations are not unitary when subsidiaries operated independently and do not seek approval from parent on operational or management decisions). Therefore, the evidence shows that the type of oversight and management involvement was that provided by any parent to its subsidiary, and was insufficient to show unitary operations. See F.W. Woolworth, 458 U.S. at 369-70 (explaining that where parent is not involved in long-range planning, company operations, accounting, public relations, or labor relations, minimal oversight is part of normal interaction with subsidiary and not indicative of unitary operations). ¶ 29. On appeal, the Department also argues that strong centralized management is indicated by AIG’s involvement with MMC on a real estate development project called Spruce Peak. The evidence on this project is as follows. MMC has 99% interest in Spruce Peak, and the remaining 1% is owned by a different AIG-owned business. The project’s purpose was to develop and sell real property at the ski resort. A consultant was hired as the project director of Spruce Peak.3 The project director testified that he communicated with AIG officers who were on 3 The Commissioner’s decision notes that while there was no direct evidence, it is likely that the director was located by AIG. Given the Commissioner’s acknowledgement that there was no evidence to support this inference, we do not consider it. 13 MMC’s board, but in a very limited manner. His testimony describes the project as a discrete business enterprise, and he explained that on issues of real estate development, he did not consult with AIG officers because it was not their business line and they did not have expertise to offer. He stated that Spruce Peak did not have common purchasing with AIG businesses, maintained its own office space, and maintained its own accounting staff. The Commissioner found that although AIG’s active involvement in Spruce Peak was greater prior to 2006, in 2006 it included frequent communications between AIG and Spruce Peak. At most, the evidence demonstrates that AIG was involved in this development, but there is nothing to indicate that AIG lent expertise to the success of the project or integrated it with any of its other businesses.