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December 7, 2011
Veil Piercing the Rule Even When It's Not
I just stumbled across the United States Supreme Court decision from June of this year: Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011). The case was essentially a personal jurisdiction case, in which the plaintiffs sought to sue European affiliates of Goodyear in North Carolina courts. The plaintiffs' child was killed in a bus accident in France and European-manufactured tires were allegedly the culprit.
So what does this have to do with business law? Well, a unanimous Supreme Court explained, in denying jurisdiction:
Respondents belatedly assert a “single enterprise” theory, asking us to consolidate petitioners' ties to North Carolina with those of Goodyear USA and other Goodyear entities. See Brief for Respondents 44–50. In effect, respondents would have us pierce Goodyear corporate veils, at least for jurisdictional purposes. See Brilmayer & Paisley, Personal Jurisdiction and Substantive Legal Relations: Corporations, Conspiracies, and Agency, 74 Cal. L.Rev. 1, 14, 29–30 (1986) (merging parent and subsidiary for jurisdictional purposes requires an inquiry “comparable to the corporate law question of piercing the corporate veil”). But see 199 N.C.App., at 64, 681 S.E.2d, at 392 (North Carolina Court of Appeals understood that petitioners are “separate corporate entities ... not directly responsible for the presence in North Carolina of tires that they had manufactured”). Neither below nor in their brief in opposition to the petition for certiorari did respondents urge disregard of petitioners' discrete status as subsidiaries and treatment of all Goodyear entities as a “unitary business,” so that jurisdiction over the parent would draw in the subsidiaries as well. Brief for Respondents 44. Respondents have therefore forfeited this contention, and we do not address it. This Court's Rule 15.2; Granite Rock Co. v. Teamsters, 561 U.S. ––––, ––––, 130 S.Ct. 2847, 2861, 177 L.Ed.2d 567 (2010).
Goodyear Dunlop Tires Operations, 131 S.Ct. at 2857 (footnote omitted).
Though it is dicta, this explanation seems to conflate veil piercing, enterprise liability, and agency liability into a single theory in a way that's not necessarily right, at least, not in my view, because it seems to imply that veil piercing is the only way to find liability in such a case. However, as the Brilmayer & Paisley piece explains:
The notions of merger and attribution have obvious parallels to substantive law. The issue of jurisdictional merger is comparable to the corporate law question of piercing the corporate veil. Where two corporations do not maintain the requisite formal separation, a legal liability ascribed to one may be satisfied against the other. This theory of substantive liability can be contrasted with a narrower theory of substantive liability, which corresponds to our category of attribution. If a corporation incites or motivates another to engage in actionable conduct, it may be liable for its responsibility in causing the harm. The two corporations are not declared to be identical for all purposes; their separate entity status is preserved. The actions of one are attributed to the other
only for the limited purpose of finding liability for particular acts. (footnote omitted)
I agree that the Supreme Court got the outcome right in the Goodyear Dunlop case, procedurally. And I suspect I would have agreed with the outcome substantively, too. However, I'm not sure it's only because the case would have failed on a veil piercing theory. It appears to me that the claim would have failed on an enterprise liability and an agency theory, too, both of which are more appropriate claims, it seems to me.
Scholars have argued that courts embrace veil piercing too easily
, and I think that's often true. Here, even in denying the claim, the Supreme Court reinforced that is the rule.
December 7, 2011 in Corporate Governance | Permalink
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