Craig v. Lake Asbestos of Quebec, Ltd.

United States Court of Appeals for the Third Circuit · Corporations

CorporationsPiercing the corporate veilParent-subsidiary liabilityAlter ego liabilitycorporate veilalter egoparent corporationsubsidiary

Facts

Charter, a publicly held U.K. holding company, gradually acquired 67.3% of Cape's stock and maintained three nominees on Cape's board, while Cape remained a separate publicly held U.K. holding company. Cape's subsidiary NAAC had sold asbestos in the United States, and after asbestos litigation in Texas, Cape declined to defend later U.S. asbestos suits, dissolved NAAC, and business continued through CPC in a manner the district court viewed as a scheme to avoid U.S. tort liability. The two corporate groups maintained separate books, records, bank accounts, offices, staffs, and advisors, although Charter was involved in some major financial and management decisions affecting Cape. The parties stipulated that the only issue was whether Charter should be responsible for Cape's liability share as if Cape had been liable to Craig.

Issue

Whether, under New Jersey law, Charter's relationship with Cape showed the degree of domination required to pierce the corporate veil and hold Charter liable for Cape's tort obligations. More specifically, the question was whether Charter's majority ownership, board representation, and involvement in Cape's affairs made Cape merely Charter's conduit or alter ego.

Rule

New Jersey permits piercing the corporate veil only when (1) the parent so dominated the subsidiary that it had no separate existence and was merely a conduit for the parent, and (2) the parent abused the privilege of incorporation by using the subsidiary to perpetrate a fraud or injustice or otherwise circumvent the law. The required control is more than majority or even complete stock ownership; it must be complete domination of finances, policy, and business practice so that the subsidiary had no separate mind, will, or existence of its own.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

North Shore Holdings, a Delaware parent based in Chicago, owns 72% of Riverbend Minerals, a New Jersey subsidiary operating in Newark. North Shore placed three of its executives on Riverbend’s 11-member board and expects Riverbend to consult it before major acquisitions, but Riverbend maintains separate books, bank accounts, offices, employees, and outside accountants.

An injured tort claimant seeks to hold North Shore liable for Riverbend’s obligations under New Jersey veil-piercing law. Which is the strongest argument against piercing?

Explanation. New Jersey requires more than majority stock ownership or substantial influence. The parent must so dominate the subsidiary’s finances, policy, and business practice that the subsidiary has no separate mind, will, or existence and is merely a conduit. Separate books, bank accounts, offices, staff, and advisors strongly cut against that showing. (Derived from Craig v. Lake Asbestos of Quebec, Ltd. (n.d.).)