American Protein Corporation v. AB Volvo

United States Court of Appeals for the Second Circuit · 1988 · Corporations

844 F.2d 56 (2d Cir. 1988)

Updated August 22, 2026

Corporationsparent-subsidiary liabilitycorporate veilcomplete dominationfraud or wronginterlocking directoratestortious interferenceeconomic interest

Facts

American Protein entered a three-year output contract with Beijer, Inc., a New York subsidiary within a chain of Swedish parent corporations ultimately controlled by Volvo. Before contracting, Lauridsen asked for a written guarantee from Beijerinvest, but Lycke told him no such guarantee could be given. After Volvo acquired Beijerinvest, Beijer, Inc. performed for several months, lost money, and at an October 1982 New York board meeting attended by Lycke and two Volvo executives, the board voted to "wind down" Beijer, Inc.'s affairs. Beijer, Inc. later defaulted on the contract, and American Protein sued the parent corporations and Lycke.

Issue

Whether the evidence was sufficient to hold a foreign parent corporation liable for its subsidiary's contract default by piercing the corporate veil or by finding an oral or implied guarantee; whether the parents were liable for tortious interference when parent executives participated in the subsidiary's decision to terminate a money-losing contract; and whether Lycke could be liable for negligent misrepresentation based on statements made during arm's-length contract negotiations.

Rule

Under New York law, a parent may be held liable for a subsidiary's conduct only if it exercised complete domination of the subsidiary with respect to the challenged transaction so that the subsidiary had no separate will of its own, and that domination was used to commit a fraud or wrong causing plaintiff's injury. Interlocking directorates alone do not establish such control. A party with an economic stake in another business may interfere with that business's contract to protect its own interest absent malice toward the plaintiff. Negligent misrepresentation requires a special relationship creating a duty beyond ordinary arm's-length bargaining.

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Hudson Grain Labs, an Albany company, signed a supply agreement with Metro Ag Trading, a New York subsidiary of North Fjord Holdings, a Norwegian parent. Metro Ag later defaulted, and Hudson sues North Fjord after showing only that three of Metro Ag's five directors were also executives of North Fjord, while Metro Ag kept separate books, held its own board meetings, and maintained its own office in Buffalo.

Under the governing New York rule, is Hudson most likely to pierce the corporate veil and hold North Fjord liable for Metro Ag's breach?

Explanation. New York begins with a strong presumption of corporate separateness. To pierce the veil, the plaintiff must show complete domination of the subsidiary with respect to the challenged transaction and use of that domination to commit a fraud or wrong causing the injury. The majority opinion emphasized that interlocking directorates, without more, are insufficient. Separate records, meetings, and offices cut against veil piercing.