Court Opinion

ID: 9703474
Source: CourtListenerOpinion
Date Created: 2023-08-25 23:58:04.785202+00
Date Added: 2024-06-11T18:21:49.490997
License: Public Domain

JUSTICE McNULTY, dissenting: The Supreme Court, in United States v. Bestfoods, 524 U.S. 51, 141 L. Ed. 2d 43, 118 S. Ct. 1876 (1998), restated principles concerning a parent corporation’s liability for direct participation in allegedly negligent acts affecting a subsidiary. Although the majority here cites and relies on Bestfoods, the majority does not apply the pertinent principles restated therein. Proper application of those principles shows that the trial court here correctly granted defendant summary judgment. In Bestfoods, CPC International owned Ott Chemical Company and installed CPC officials as directors of Ott. Ott polluted its land for years before its bankruptcy. The United States sued CPC to recover the costs of cleaning the site. The district court found CPC liable, both indirectly, as the owner of Ott, and directly, as a direct participant in the facility’s pollution. In finding direct liability, the district court relied on evidence that CPC controlled Ott by placing CPC officers on Ott’s board of directors. On appeal the Supreme Court held: “It is a general principle of corporate law *** that a parent corporation *** is not liable for the acts of its subsidiaries. [Citations.] Thus it is hornbook law that ‘the exercise of the “control” which stock ownership gives to the stockholders ... will not create liability beyond the assets of the subsidiary. That “control” includes the election of directors, the making of by-laws ... and the doing of all other acts incident to the legal status of stockholders. Nor will a duplication of some or all of the directors or executive officers be fatal.’ ” Bestfoods, 524 U.S. at 61-62, 114 L. Ed. 2d at 55-56, 118 S. Ct. at 1884, quoting W. Douglas & C. Shanks, Insulation From Liability Through Subsidiary Corporations, 39 Yale L.J. 193, 196 (1929). Thus, the Supreme Court found CPC’s control of Ott’s board and the identity of the officers insufficient for the imposition of direct liability. The Court added: “[T]he District Court wrongly assumed that the actions of the joint officers and directors are necessarily attributable to CPC. *** In imposing direct liability on these grounds, the District Court failed to recognize that ‘it is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability for its subsidiary’s acts.’ American Protein Corp. v. AB Volvo, 844 F.2d 56, 57 ([2d Cir. 1988]), cert. denied, 488 U.S. 852[, 102 L. Ed. 2d 109, 109 S. Ct. 136] (1988); [citations]. This recognition that the corporate personalities remain distinct has its corollary in the ‘well established principle [of corporate law] that directors and officers holding positions with a parent and its subsidiary can and do “change hats” to represent the two corporations separately, despite their common ownership.’ Lusk v. Foxmeyer Health Corp., 129 F.3d 773, 779 ([5th Cir.] 1997); [citation]. Since courts generally presume ‘that the directors are wearing their “subsidiary hats” and not their “parent hats” when acting for the subsidiary,’ P. Blumberg, Law of Corporate Groups: Procedural Problems in the Law of Parent and Subsidiary Corporations § 1.02.1, p. 12 (1983); [citations], it cannot be enough to establish liability here that dual officers and directors made policy decisions and supervised activities at the facility. The Government would have to show that, despite the general presumption to the contrary, the officers and directors were acting in their capacities as CPC officers and directors, and not as Ott *** officers and directors, when they committed those acts.” Bestfoods, 524 U.S. at 68-70, 114 L. Ed. 2d at 60-61, 118 S. Ct. at 1888. Plaintiffs here presented evidence that defendant’s officers also served as directors of Clark Refining, and the directors of Clark Refining knew of the maintenance problems and approved the budget that slashed funding for training new employees and for maintenance. But plaintiffs, like the government in Bestfoods, needed to present evidence from which a trier of fact could conclude that those persons acted in their capacities as officers of defendant, and not as officers and directors of Clark Refining, when they committed the allegedly negligent acts. Plaintiffs did not present any evidence that defendant’s officers acted solely as such officers, and not also as directors of Clark Refining, when they reduced Clark Refining’s budget and left its maintenance department understaffed. That is, plaintiffs have not presented sufficient evidence to overcome the presumption that the directors wore their “subsidiary hats” and not their “parent hats” when making the decisions that allegedly led to the injuries here. Melnuk acted, at least in part, as Clark Refining’s chief executive officer when he approved minimal funding for maintenance and training. Plaintiffs have shown no evidence of any divergence in interests between defendant and Clark Refining. As owners of all stock in Clark Refining, defendant suffered the entire loss of its subsidiary, and the estates presented no evidence that defendant profited from Clark Refining’s losses. Most notably, plaintiffs have not alleged any negligent acts committed by persons who served solely as officers of defendant and not also as officers or directors of Clark Refining. A trier of fact could infer from plaintiffs’ evidence that defendant set broad policies for its subsidiary, and Clark Refining implemented those policies. The trier of fact could infer that defendant, through its officers on the board of Clark Refining, controlled Clark Refining. But, as the court held in Bestfoods, that control gives rise to indirect liability, under the doctrine of piercing the corporate veil, and not to the direct liability the estates ask the court to impose here. Nothing in the evidence indicates that defendant abandoned its role as stockholder in its subsidiary, Clark Refining. Plaintiffs have presented no grounds for holding defendant separately liable for negligence, after its subsidiary has already paid workers’ compensation to the estates of the employees killed in the accident at its subsidiary’s refinery. Defendant’s directors and officers acted, in part, as Clark Refining’s directors when they adopted a budget that allegedly underfunded Clark Refining’s maintenance and training programs. Plaintiffs presented no evidence of separate acts, attributable solely to defendant, by which defendant and not Clark Refining caused the injuries here. Because plaintiffs have not presented grounds for holding defendant directly liable for the accident at Clark Refining’s refinery, I would affirm the decision to grant summary judgment in favor of defendant. Accordingly, I dissent.