High Court's Good News For Out-Of-State Parent Companies

August 04, 2017

In the modern world, large-cap and medium-cap businesses often consist of multiple legal entities that function together yet have distinct roles and responsibilities — whether they are bankruptcy-remote special purpose entities that will secure financing, upstream parent entities designed to obtain mezzanine loans, or holding companies that will be the single taxpayer for "look-through" subsidiaries disregarded from a tax perspective.

For civil litigators on the defense side, consciousness of entity separateness is a must. But for those on the other side of the "v," the common refrain is that affiliated defendants are but one functioning company unified by vicarious liability through single enterprise or alter ego or veil piercing.

Thus, when a plaintiff decides to sue based on the alleged wrongs of an affiliate, a parent or subsidiary company may find itself a party to litigation to which it considers itself a stranger. Even if the vicarious liability allegations are inaccurate, the war that must be waged to prevail on that heavily fact-specific issue may not be worth the fight.

Read, High Courts Good News For Out-Of-State Parent Companies